Monday, June 01, 2009

When for Stocks? Now!

Fidelity recently published a few articles, describing economic cycles, examining the current economic trend indicators and analyzing when historical precedent teaches to reinvest in stocks during a recession.

My wife and I changed our investments around in February, with a plan we hoped would minimize the continued loss as the recession finished its cycle yet also would capture all of the eventual rebound.

I forgot at that time to write down where the investments were in February. But our investments have increased steadily. They are up 11% since mid-December, and 7% since early April. So far our plan is succeeding.

(UPDATE: I later checked the comparative change in the S&P 500. It has increased 7% since mid-December and 12% since mid-April. So we are "succeeding" by stably enjoying more than half the overall gain while having much less than half the overall risk.)

What did we do?

Well, it's a secret.

But I can describe our "Big Plan" without revealing much about what parts of it we actually followed. (Each investment requires a fee to purchase and sell, so investing in everything below would be quite costly.)

For more theory behind all this, please refer back to that February post and all its links.

First, to prepare for long-term large inflation use gold (GLD) and Treasury Inflation-Protected Securities (FINPX). These have been positive since February: short-term increase was unexpected.

Second, we did decide that the local Pacific Continental Bank (PCBK) has value unfairly depressed by its sector. We've invested in it, at least until the banking sector has recovered. This is clearly the riskiest part of our new allocation. So far it has done well, but that means little.

Third, a few stocks are simply too good to pass up when the market is low. We considered buying some BRKB, GE, and JNJ for the long-term picture.

Fourth, to emphasize the market sectors expected to rally first we considered funds for consumer staples (FDFAX) and MidCap (FNMIX, FMIMX).

Fifth, to take advantage of sectors favored by the Federal "Stimulus Plan" we considered funds for materials (FSDPX) and energy (FSENX, FSESX).

Sixth, we expect the current administration to be sufficiently anti-business to drive big companies to do more overseas, so we considered funds for Latin America (FLATX), Southeast Asia (FSEAX), and India (IFN).

Finally, for completeness we considered a second bond fund (FGOVX).

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