They say a bull market makes geniuses of us all. And there’s some truth to that. When the market is climbing and inviting almost all the stocks along for the ride, even a two-year old child or 82-year old grandmother can run up big gains.
I remember at the height of the dotcom boom, analysts talking up their favorite fast risers. Remember Webvan? It talked a good game ... spent more than a billion bucks ... expanded from San Francisco to eight other cities ... and saw its shares peak at $30. It was a nice ride while it lasted. But it didn’t last long. Some 18 months after its IPO, it shut down. But for a while, those analysts who touted Webvan looked like geniuses (and many got paid like one too).
If you don’t remember Webvan, perhaps you remember pets.com. Its IPO took in over $82 million. Cheerleading analysts didn’t have a lot of time to bask in the company’s reflected success. Nine months later it was out of business.
There are dozens if not hundreds of other examples of companies that were once the darlings of Wall Street but disappeared in the bear market of 2000 through 2002. Once again we’re in bear territory and once again crashes and plunges and bankruptcies and companies holding on for dear life will be part of our investing world.
It gets much harder now...
First off, that feeling you have that you’re swimming up-stream all the time? That’s because you really are.
It’s like the song I used to hear as a kid – Ten Little Indians (yes, I’m dating myself). First there were ten, then there were nine, then there were eight ... until one little Indian is left.
Last year, eight out of ten major sectors went up, according to the Dow Jones Indexes. The reverse is happening this year. Eight out of the ten are now in negative territory for the year. Materials and energy are the only holdouts – and of those two, the materials sector is down 2.5 percent for the month of June.
Only one little Indian left – energy.
Energy covers everything from the oil majors to small alt-energy start-ups. This is a tricky sector. If you don’t pick and choose carefully, you could easily lose your shirt. For example, I’m not touching the oil majors right now. Even as they grow their profits, their oil production and reserves are shrinking. Their offshore production and pipelines are under attack by militants in Nigeria. Their joint ventures are under government attack by Russia and other countries looking for a bigger piece of the pie. It’s become an unfriendly world for Big Oil. And they don’t seem to know what to do about it.
Energy has a few places where investors can do very well. But it certainly isn’t a haven. Then what is?
* Retail? It’s the third-worst performing sector in the S&P 500 during the past three months. Low-cost retail should do relatively well. But it’s no haven. If it were, you wouldn’t have to try to figure out why Wal-Mart is doing well and some mega-stores like Costco aren’t.
* Precious Commodities? A surprising laggard that has lost investors some money over the past three months. I talk about gold below so let’s turn our attention to non-precious commodities for a moment.
A combination of bad weather, accidents, and project delays are pushing prices to record highs. Will this last? Could they go even get higher? Not if the economic slowdowns in the U.S. and Europe leak into Asia.
* Oil services? I’ve recommended overseas integrated oil companies, publically listed state-controlled oil enterprises, rig contractors, oil tankers, and oil pipelines. Half these companies were up last week.But since the beginning of the year, it’s no contest. The rig companies are my best oil-related companies by far.
Last week’s latest leg down officially introduced the markets to bear territory. With no obvious havens apart from energy remaining, how should investors invest? Should they even bother with the equity markets?
Apart from rigs, the other sector I like is dry bulk shipping. It’s actually a hedge against the banking crisis and credit crunch. By making it more difficult to borrow, banks are forcing numerous shipping companies to abandon their plans to build ships. The shortage in dry bulk ships just got extended by the banks.
The bottomline is sobering: Investing in a bear market is hard work. If you’re not up to it, put your money in cash. Protecting your money is better than losing it.
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