Cash and Gold Are the Two Best Assets in a Bear Market
Editor’s note: This article was originally published on October 3, 2019 via Legacy Research Group.
“Axe” and “woodshed”…
Yesterday, the Dow plunged by more than 500 points.
That’s a 2% drop.
And over the past two days, it’s down by more than 3%. That’s the worst start to the quarter since 2008.
And the S&P 500 chalked up its worst start to the quarter in about a decade.
It tumbled nearly 2% yesterday. And it’s down about 3% since the start of the month.
These plunges have investors rattled…
But as you’ll see today, they’re small potatoes compared with what unsuspecting investors will suffer next bear market.
That’s why, here at the Cut, we’ve been urging you to take the time NOW to prepare your portfolio for the next bear.
You’re not going to accurately time the top of this bull market to the day. But as Rick Rule, the president and CEO of Sprott U.S. Holdings, put it at the Legacy Investment Summit in California last week, that’s not the point.
Rick is a legendary investor in natural resource stocks. And he’s made hundreds of millions of dollars for himself and for his clients by being attuned to market cycles.
As Rick told the folks who joined us for the summit, you don’t need a crystal ball. What you can be sure of is that bear markets follow bull markets… and vice versa. Rick…
The biggest lesson with regards to investing in natural resource stocks in particular – but also stocks in general – is that they’re cyclical.
Bear markets are the authors of bull markets. Bull markets are the authors of bear markets. The slogan I use to educate investors as quickly as I can about the implications of this is that you are either a contrarian, or you will be a victim.
That means paying attention now to the prospect of a coming bear market… even if there’s still some life left in the bull.
It sounds obvious. But it’s a key point. The time to prepare for a bear market is before it’s wreaked havoc… not after.
The average bear market loss for the S&P 500 is 46%…
And you’d be lucky to be saddled with “just” the average loss.
Going back to 1929, there have been eight bear markets in the U.S. They’ve lasted between six months to nearly three years. And they’ve sent the S&P 500 plunging between 27% and 82%.
If you’re 100% invested in stocks, you’re risking a “ruinous loss.”
That’s the term Legacy Research cofounder Bill Bonner uses for a loss you can’t recover from.
Bear markets typically accompany recessions…
Here at the Cut, we call bear markets and recessions the “terrible twins.”
Of the eight bear markets going back to 1929, five have been accompanied by a recession.
And despite what you might hear from TV’s talking heads… or government officials… a recession is very much in the cards.
But don’t take it from me…
Take it from the folks paid to worry about recessions and their effect on corporate sales – America’s chief financial officers (CFOs).
In its latest quarterly survey of 255 CFOs at U.S. firms, Duke University reported that two in three of them see a recession coming by the end of next year.
And more than half see a recession by the third quarter of 2020.
That’s why we’ve been like a broken record on the importance of diversification…
The simplest, most effective way to avoid a ruinous loss is to spread your wealth across different “buckets,” or asset classes.
That’s why you should make it a core part of your investment philosophy. Here’s Teeka Tiwari, who heads up our Palm Beach Confidential advisory, with more…
What percentage of your money should you invest in stocks? What percentage in bonds? How much real estate should you own? What percentage in collectibles? How much in cryptos? What amount of cash? What amount in gold?
How you answer these questions is what really moves the needle in terms of your wealth.
And when you’re thinking about your portfolio mix, it’s important to not get stuck looking in the rearview mirror. It’s what’s coming down the pike that matters.
Your two best friends in a bear market are gold and cash…
Unlike stocks, bonds, and other financial assets, physical gold – either stored in a vault or sensibly at home – isn’t someone else’s promise to pay.
Gold is real wealth. It’s been recognized as real wealth going back thousands of years.
Gold is also “disaster insurance.”
As our globetrotting geologist Dave Forest has been telling readers of our International Speculator advisory, gold is the best precious metal to own in a crisis. Take a look…
Of the five precious metals Dave looked at, gold is the only one that went up before, during, and after the last four major financial crises.
Cash is also great to have in a bear market…
Think of cash like ballast in a ship. It keeps it steady in a storm.
When stocks are tanking… and panic is in the air… cash will stay steady as a rock.
Cash also gives you the ability to buy beaten-down stocks at bargain-basement prices. In other words, cash gives you the courage… and the ability… to buy low and sell high.
And that’s how you make real money as an investor.
Think also about the kinds of stocks you own…
Because some stocks do better when the bear is stalking than others.
It’s something Jason Bodner flagged for our Palm Beach folks earlier today.
As regular readers know, Jason used to work at Wall Street financial services firm Cantor Fitzgerald. He often traded more than $1 billion in stock for wealthy clients. And he learned how the stock market works from the inside out.
Then, after nearly 20 years on Wall Street, he walked away from it all. And he used his knowledge of what really moves stock prices to develop his own “unbeatable” stock-picking system.
It blends the strategies of elite Wall Street traders with the work of Nobel Prize-winning mathematicians. It even uses artificial intelligence (AI).
And it has one aim. It detects when billions of dollars in institutional money is headed into certain stocks. This allows Jason and his readers to ride them higher as the Wall Street money flows in.
Lately, Jason’s system has been detecting a surge of defensive buying…
It’s also detecting heavy-selling stock sectors that are the most sensitive to a recession. Here he is with more on that…
Without getting into too much detail, when my system flashes green, it means big money is buying. When it flashes red, it means big money is selling.
Last week, we saw plenty of red in the growth-heavy tech sector. And 82% of the sell signals my system generated were for software stocks.
On the flip side, my system detected big buying in utilities. Investors generally view the sector as defensive because it offers stability and strong yields.
You can see what that looks like in the chart below.
The defensive utilities exchange-traded fund (ETF) is up 3% since August 30, as more growth-sensitive software stocks have fallen.
As Jason puts it, there’s always a bull market somewhere…
You just have to know how to find it.
Remember, his system can detect when deep-pocketed investors start pouring into – or out of – certain stocks or sectors. This allows his readers to stay ahead of the crowd.
For instance, in a recent study that covered 30 years of data, Jason’s system pinpointed the No. 1 stock on the S&P 500 almost every year (including the past six years in a row).
And it beat the returns of superinvestors, such as Warren Buffett and Carl Icahn, by 500-to-1 over the same period.
And last night, Jason showed thousands of people how it can make them more money – with more certainty – than almost any other investment they may have tried in their life.
Sound too good to be true?
Chris Lowe October 3, 2019 Dublin, Ireland
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.