What to buy now? an answer to a post by Mrluc
Mrluc asked: I have cash.What should i buy now?
A very good question.
I want to answer it in two steps.
First there is the question of timing.
I do not think we have seen the lows in the S&P.
The market has not yet accepted that there will be a second more serious leg to the recession in the US. Nor has it accepted that there will be a global "recession" to accompany that.
Therefore I expect that the broad market has further to fall.
There is only one "low" that i really trust to hold and that is the one made at the bottom of the last bear market. S&P 800, that is.
So in general i would not invest money now for the long term.
To change my mind a serious proces of bottoming out should become visible. To give one example: it would be mildly positive if the july lows of the financials would hold.
An important warning:
I think its possible there will be a sharp rally in the commodities and related stocks. They look very oversold here. But i think that that will be a bear market rally. There will be a second leg down as the slowing of the global economy really begins to bite. I am not sure such a rally will materialize, but if it does it would be a real trap for someone wishing to invest for a long time. It should be seen as a trade.
Second answer: where would i invest if and when the world markets have finally made a bottom?
A diversified portfolio.
Some commodity related plays for sure. Food and oil/gas. MON, POT, XTO, HK for example.
Some of the survivors in the financial field. I would be interested in global banks, swiss banks, US banks at a discount. Difficult to say now who will be in the best position.
I would invest in the BRIC markets. Probably a mix of proven investment funds and individual stocks. General theme: the growth of their middle class.
I would invest in biotech. Because of the inherent risks of failure in individual stocks i would invest in a few biotechfunds that have a focus i agree with.
I would invest in information technology. I would choose strong firms with a worldwide franchise. CISCO for example. Or IBM. When it comes to new tech i would again go the road of a few funds, because of the necessity of spreading the risk.
I would invest in solar, thinking that that is the place where a new bubble could form. I would invest around momentum, fundamentals do not really count there. I would not however look upon that investment as one for the long term.