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2018 was a rocky year. With all time highs and a record breaking losses it the major indexes started to look more like roller coaster rides and equity graphs. 2018’s rocking markets are in large part thanks to the politic instability felt across the globe. With huge tax cuts and tariff hikes investors were faced with unprecedented conditions and an unpredictable white house. However they powered through and in august we experienced all time highs and two trillion dollar companies, Apple and Amazon.
It couldn’t last
However coming out of the summer things began to correct. Tumbling equities and inverted yield curves pushed us to the brink of a bear market on Christmas eve. However thanks to a Christmas miracle equities shot back up after the 26th and rose into the new year. Yet this miracle is likely not enough to stop a bear market. It’s not just the poor performance of equities, we’re coming due for a correction considering the last one was over 10 years ago.
It pays to be prepared
In anticipation of a bearish 2019 we’ve compiled a list of investments we feel will help protect your cash in the coming months. Below we have summarized our strategies. The full report, including our personal picks, can be found here.
This is the act of purchasing a company based off a pending acquisition. When a deal is offered the stock typically trades a little below the offered price until the deal is closed. Merger Arbitrage traders take advantage of this spread. We’re like this strategy as your returns are typically insulated from overall market conditions, and more based off the value of the transaction, whether all cash or cash and stock deals.
Historically defensive investments, consumer staples consist of basics required by consumers regardless of economic environment. Low cost providers of these basics frequently perform phenomenally market downturns. Our top 3 consumer staple investments are listed below.
Hard Hit Companies
Here we’re looking at businesses which have already been hit hard in the last quarter of 2018. Businesses that faced some form of scandal or conflict. These businesses we expect not to fall much farther in a bear market as they are close to bottoming out.
One of the most common methods of diversifying one portfolio are bonds. Seen as a defensive investment when equity yields are low, negative or uncertain now is a time which investors will be looking to switch to debt. Bonds themselves are quite diverse with yields tide to duration, the creditor and rate hikes. It is important to understand how each performs in various markets to ensure your investment is as safe as it can be. C
Cash – Overweight US Dollars
As one of the safest investments during tough economic times, cash is a safe haven for worried investors. Bear markets are frequently paired with a rise in the US dollar. As investors, fearing losses on equities and debt, switch to cash to weather the storm. Additionally many investors switch to cash to prepare for the end of a bear market, so that they are fully locked and loaded to start buying. Even in 2008 with the near collapse of the US financial system, the US dollar performed exceptionally well. For those investors looking to protect their wealth in a bearish 2019 look no further than an investment in the US dollar.
Nothing is more important than your health. This fact helps make the healthcare sector super defensive and solid during all economic climates. No matter your income you still need your medicine, and thanks to health insurance, drug costs are often shared by an entity with deep pockets. We like healthcare most times being in a secular Bull Market with demographics, but going into 2019 we’re taking a solid look as a way to protect our portfolio.
Arguably one of the best ways to enter the market when unsure of the climate or outlook is through the use of options. In this section we will provide a few strategies and some names that one could look at as a way to gain equity exposure.
2019 as of now appears to be a bearish year. It is important for all investors to consider all available information and make the most educated decisions possible in their investments. Consultation with an investment adviser if possible is ideal. Bear markets are dangerous, with most asset classes falling due diligence is more important than ever. We hoped this report presented some new ideas to consider and new options to weigh. Again be sure to do your own research before investing in anything mentioned in this report or in any report. 2019 looks like it’s going to be a rocky one, so good luck!
Still curious? Find our picks for each strategy mention in our full report here
Thanks for reading
– The Stock Boys
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