We are officially in the final leg of this 9.5-year bull market in U.S. equities.
Soon, you will begin to see a major market rally, more volatile than previous ones, which will take the major indices to new all-time highs, attracting speculators and momentum traders, feeding the market’s hunger for newcomers, so that the professionals can exit with their massive gains intact, dumping their expensive shares on to rookies.
In other words, welcome to the riskiest part of a bull market – its blow-off top and eventual crash.
Historically, these processes last between 12 to 18 months and provoke wild emotional swings – don’t expect this to be any different.
If you’re invested heavily in stocks, consider preparing the portfolio for a bear market:
Take Profits: There are a few select businesses, which are phenomenal long-term investments and should be held through the bear market because of their ability to pay a dividend, which isn’t affected negatively by market action.
Hold these stocks and continue to reinvest your dividends into buying more shares.
One example of a stock, which I have a big position in is Owens & Minor, which currently generates a 5.54% dividend yield, which no bear market will change. In the past 4 days, shares are up a significant 9%. For new investments, the best entry price is below $18.73.
In fact, I anticipate the company to increase its dividend payment. In 2011, the dividend was $0.20 per share, and today it is 30% higher, at $0.26. This is the same as raising rents by 30% in seven years – it’s a moneymaking activity. To put that into perspective, imagine a tenant paid $1,000 a month in 2011, now pays $1,300 and indicates that he will pay $1,690 in 7 years. That’s the power of Dividend Raisers.
However, if you have ultra-expensive stocks in your portfolio or ones, which don’t pay a dividend at all and are related to risky industries, which are not in hyper-growth, it is time to begin selling.
For instance, I just sold my _Las Vegas Sands _position. The position is up over 300% since 2010, and a recession usually hits gaming and casinos first.
Build a High-Yield Allocation: Since bear markets or sideways markets offer little capital appreciation, which is responsible for nearly 60% of historical stock market gains, you need to rely on dividends more heavily.
Some companies can generate double-digit dividend yields. These are valuable for such times, as we’re entering.
One example of a fantastic business is Buckeye Partners, which is an oil and gas pipeline operator, which currently yields 15%!
Uncorrelated Industries: This is one of my secret tools. There are sectors, which actually perform well, while the majority of stocks plummet.
One such niche is precious metals, like gold stocks, which normally are problematic and challenging.
By adding exposure to them, we can reduce risk and add diversification. We are currently taking big steps towards finding our top stock suggestions in this arena.
Cryptocurrencies: Bear markets in stocks do not impact the crypto sector yet, so I expect cryptocurrencies to perform exceptionally well during times when stocks are generally not.
Right now, I’m personally accumulating Aragon and Dragonchain.
Remember, only 2% of investors have ever owned a crypto asset, but hundreds of millions own stocks.
In the bear market, they will seek a better alternative. Gold stocks and cryptocurrencies will offer this to them.
Best Regards,
Brad Robbins
President, PureBlockchainWealth.com