Finance Your portfolio This is the area that will likely be most affected by any market downturn or correction. Take a close look at your holdings, and determine where problems – and opportunities – happen to be. Assess what worked (and what didn’t) One of the most important things on your “to do” list after a downturn is to take a closer look at how your portfolio performed, and assess which investments worked out for you, and which didn’t live up to your expectations. Ask yourself: did your defensive investments perform as expected? Was your portfolio sufficiently diversified? Did that diversification provide some protection as the stock market went down? Are there positions that have been absolutely devastated and, realistically, what are their prospects for recovery? Ultimately, your goal should be to clean up any “messes” that the downturn created. But don’t feel that the clean-up process has to happen right away. Instead, it might make more sense to ease out of certain positions gradually, over several months or quarters. That way, you can gradually improve your portfolio while allowing your existing investments time to recover. Get your “watch list” ready It’s sometimes tough to do proper investment analysis when you’re in the middle of a downturn − there’s too much market noise, too much commentary, toomany variables changing every day. That’s why most experienced investors keep a watch list − a list of companies and/or other investments which they’re constantly reviewing and keeping an eye on. Whether you’re just getting started with investing or whether you’re a seasoned veteran, one of the best things that you can do after a downturn is to take a close look at your watch list, and think about the assets which you’ve wanted to own for the last few years, but couldn’t because the price was just too high. This might be the time to buy some at a bargain price. Or maybe not. But you won’t know unless you start doing some of the necessary homework now. The best time to construct your watch list is obviously before a downturn actually hits. But if you didn’t, start looking now. A good place to start is by taking a look at the “fallen angels” − the former high-flyers of the stock market that have come off of their all-time highs. Be patient (but not paralyzed) One of the difficulties of a nearly 10-year-long bull market is that there are a lot of investors who are waiting anxiously for it to end. Many investors have determined that equities are too expensive to purchase right now − what they really want is a strong, sharp decline in the price of given stocks, so that they can snap up top-quality stocks on the cheap. In theory, there’s nothing wrong with such a strategy. However, it can sometimes result in a herd mentality, in which investors fear that if they don’t rush into the market at the first sign of a downturn, the market will rebound quickly and the opportunity to buy low will be gone. At other times, this pent-up demand can lead to a strange kind of “investment paralysis,” as investors wait for the absolute bottom of the market before buying. Here’s the bad news: it’s notoriously difficult to “time the dip” perfectly − even professionals are often early (or late) when it comes to calling the exact bottom of the market. Here’s the good news: you probably don’t need absolutely perfect timing to take advantage of a correction. Remember: market upturns last longer than market downturns (see above). Even if you miss the absolute bottom, you’ll have a loonnnng time to make money – in the end, grabbing the last dollar at the bottom probably won’t mean as much. Think singles and doubles A lot of people think that taking advantage of a downturn comes from taking outsized risks: by buying into deeply troubled businesses that everybody else has given up on, by identifying upcoming business trends before everyone else catches on, by picking small startups or innovative “off the radar” stocks that are set for high growth when the market turns. Sure, you can make money by doing any of these things. And if you’re a seasoned, well-disciplined investor who enjoys studying and researching stock ideas, by all means, go ahead. But most of us have better things to do with our lives than doing a “deep dive” on the daily stock tables and obsessing about every opinion which we might see on the business news. 34 | www.snowbirds.org
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