Sponsored By:

Investing to Beat the Bear

July 02, 2008



Click here to watch a video of Toby's rant. Or click here to listen.

It's time for a holiday time-out. If there was ever a need for a long holiday weekend, it's now.

I'll be in Southern Ireland attempting to avoid bogies and find a few birdies on the world's greatest golf courses (sorry, Scotland).

But when you come back to the markets on Monday, you need to remember a few things.

First of all, bear markets are as much a part of life in the stock market as bull markets. We've had about 19 bear markets in the 20th and 21st centuries.

Thankfully, at ChangeWave Investing, we've carefully avoided most of the rotten areas of the market and focused our money on the small segments of the global economy with positive pricing and unit growth.

But even after taking 50% of our money off the table in our alternative energy plays in January and taking some triple-digit profits in energy stocks, we're still feeling the pain of this bear market.

The key to surviving in this market is to own only the amount of stock that allows you to sleep at night. If you're losing sleep over a position you own, then you have too much.

The good thing about this bear market is that, statistically, we're about two-thirds of the way through it. On average, we see a 30% drop from the top of a bull market to the bottom of a bear market. So, we still have a way to go, but the majority of the pain has already been felt.

If you followed our energy shale advice, you're loving life, but as this bear market runs its course, even the greatest profit growers are going to take a whipping.

What we have now is basically a tale of two markets: energy and food, and everything else.

However, at this point, even agribusiness stocks are falling to the bear. And, when we see the energy complex crack or get down to its 50-day moving average like the Market Vectors Global Agribusiness ETF (MOO), then we're going to be a lot closer to the bottom.

When that happens, even though your gut will be telling you to sell, that's absolutely the time to be a buyer.

The average bear market lasts 15 months, which would mean that we have about five months left. So, what do you do until then?

1. Take advantage of vicious short-covering rallies.

Remember that in the 2000-2002 bear market we had three big short-covering rallies of 20% or more. You need to use rallies like that to take profits (or possibly a loss) on U.S.-centric stocks that have more downside left in them.

2. Position yourself in energy plays and take profits when they run up.

When you get 50% to 100% moves in these momentum stocks, it's time to sell in order to build your cash and your wealth at the same time.

3. Come up with a list of the new bull market stocks you want to own.

That's where we can help. Right now, we recommend a bunch of dividend-paying stocks in the form of energy trusts and some beaten-down mortgage real estate investment trusts (REITs). One is even paying a 20% yield, and those dividends add up. (Get in now.)

Let's take a deep breath and be thankful for the holiday weekend, and the many blessings of liberty and freedom. And always remember that those benefits are ours to enjoy thanks to the lives of our brave American soldiers.

Freedom will prevail because it has to. It's what drives people to achieve great things.

Bear markets will pass. But it's in the darkest days of a bear market that the seeds are sown for the triple-digit profits that come later in the business cycle.

For now, have a great holiday and forget about the market. We'll get back to work on it next week.



Toby

P.S. If you're losing sleep at night over your portfolio, you have the wrong bear market strategy. Join ChangeWave Investing today to learn how we're profiting in this tough market, along with the names of the winners you'll want to ride into the next bull market.

---

Tobin Smith is the founder of ChangeWave Research, the editor of ChangeWave Investing and ChangeWave MicroCap Investor and a contributing market analyst for Fox News Channel. His market commentary can be found in the ChangeWave WaveWire and he provides more specific recommendations and advice through his ChangeWave Investing service. Click here to learn more about ChangeWave Investing.