Today’s eye-popping financial market statistic is brought to you by John Roque at Natixis Bleichroeder… Since the US stock market peaked in October 2007, the world’s equity market capitalisation has shrunk by 53%. If you’re counting at home, that’s $33 trillion.
So if misery loves company and you’re too depressed to look at your brokerage account statements, maybe you can grab some consolation from knowing that investors all over the world share your pain.
In fact, some poor folks have it even worse. According to Bespoke Investment Group, Iceland is down a staggering 90% this year, Ukraine is off 76%, and Bulgaria is lower by 74%.
In fact, 51 countries have experienced worse market declines than the US market’s 44% tumble. So are there any winners at all amid this global mess? Just three.
This year’s (very short) list of winners
Only Ecuador, Tunisia and Ghana have posted gains in 2008. Which is why I’m pleased to announce my new investment service – The Ecuador, Tunisia and Ghana Trader (trademark pending).
I’m being facetious, of course. But the point is that there are investors out there who are so desperate to find a performing investment that they’re willing to consider just about everything.
At times like this, you’ll often hear folks confidently booming out the ‘Yeah, but this time, it’s different” line. I’ve long been an opponent of talk like this. And I’ll tell you why…
‘This time it’s different’… and other soundbite-friendly clichés
During the dotcom boom, I was routinely told that I “didn’t understand the new paradigm”.
And when the real estate market took off, I was called names for being so stupid for not borrowing cheap money to buy spec houses and home sites in so-called ‘can’t miss’ places such as Port St. Lucie, Florida – a city that now boasts the dubious honour of having more than 11% of the homes in the foreclosure process. Unemployment is also over 10% in the county.
But is it truly different this time?
Investors have endured and overcome a Civil War, two World Wars, and the Great Depression. But now, the government seems to be in the process of bailing out every poorly-run business. In addition, we’ve got an incoming president that Wall Street knows little about yet, as well as a rapidly changing financial landscape.
The game may have changed… but the rules haven’t
Dr. John P. Hussman, who runs the Hussman Funds, wrote a letter to shareholders explaining precisely why we’re not in uncharted territory. In fact, if the S&P 500 slides to 780, another 9% drop from current levels, the market would be in the lowest 20% of all historical market valuations. A drop to 700 on the S&P would represent the lowest 10% of historical valuations.
In other words, things are tough and could get worse, but the market has been here before. Read the whole piece here.
In the long run, I believe the way you will make money in the market is the way investors have done it for over 200 years – investing in businesses that grow earnings.
Don’t pack your bags just yet… there’s potential in US large and small-caps alike
Despite the pervading smell of desperation in the market at the moment, you don’t need to buy shares of Accra Brewery Company, Tunisair, or Diners Club del Ecuador to have a prayer of making a profit.
Instead, look for stocks that could rebound in 2009. There are so many that have suffered a beating, the list could be extensive. And when you do, first look at the biggest and best companies in their fields – ones who’ve experienced market downturns before and have stood the test of time.
For example, consider Wells Fargo (NYSE:WFC) in the financial sector.
Take a look at biotech giant Genentech (NYSE:DNA) in the healthcare sector.
Cast your eye over Microsoft (Nasdaq:MSFT) in the technology space.
And as the economy recovers, companies that should fare well include McDonald’s (NYSE:MCD), Caterpillar (NYSE:CAT), Costco (Nasdaq:COST), and ITT Corp. (NYSE:ITT).
Don’t neglect the small-cap market either, though. Small-cap stocks have a history of leading the market out of a downturn. You just need to be careful which ones you pick, as it can still be a volatile sector – particularly in a fragile market.
Companies with revolutionary products include Accuray (Nasdaq:ARAY), a long-term position in the Xcelerated Profits Report portfolio and ViroPharma (Nasdaq:VPHM), which is part of the portfolio in my small-cap healthcare service, Access.
No pain, no gain
Currently, the pain train is barrelling down the tracks at full speed and we’re all aboard for the ride. It’s a bumpy and uncomfortable one, for sure. But it will eventually hit the brakes and pull into station. And when the markets calm down and things return to some sense of normality again, you’ll be glad you invested in stocks that you’re familiar with, rather than exotic investments that are often more trouble than they’re worth.
My colleagues Karim, Jim, Lee and I have all been hammering home this point for a few months now. But it’s crucial that you don’t get wrapped up in the hysteria and make poor decisions now that you’ll pay for later.
Simply put, get ready to buy good stocks on the cheap. I know it’s scary now. But this climate won’t last forever and normal order will be restored. That has been the case for over 200 years.
And rest assured that no matter whether times are good or bad, stick with us here and we’ll help you every step of the way. Better yet, join us at the Xcelerated Profits Report, where we’ll not only explain various situations to you, but show you exactly how to profit from them with specific recommendations, too. We’ll get through this together.
Meantime, thank your lucky stars that you’re not overweight in Icelandic stocks.
• This article was written by Marc Lichtenfeld of the Smart Profits Report.