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3 Cheap Stocks to Surge in a Market Crash

Boring, Predictable, No-Surprises Strategy Safely Generates $67,548Veteran economist Dr. Stephen Leeb has just released a new report detailing his top 3 stocks to survive an inflation-driven market correction. They include precious metal and copper miners sitting on reserves that could send their share prices up 3,886%, as well as a water infrastructure company with a global footprint in developing regions.
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How to Protect Your Stock Portfolio in the Next Bear Market

By Jim Fink on November 17, 2017

The stock market is hitting new all-time highs on almost a daily basis. Good news for now, but the faster something goes up, the faster it can come crashing back down if the bullish music stops. What’s worrisome is that stocks have not even paused long enough to experience a run-of-the-mill 3% correction for than 255 trading days, which is the longest stretch of stock tranquility in history (i.e., at least since 1928). Stock valuations are also stretched, with some measures showing the current stock market as the second-most expensive in history.

Let this bake in: the stock market is more expensive now than in 1929 and more expensive than in 2007 – both time periods right before soul-crushing bear markets!

We’ve all made good money during this relentless 8 1/2 year bull market since the 2009 market lows, but much of these gains could be taken away if a bear market takes hold. Hedging your stock portfolio to protect against a bear market has never been more important!

U.S. Treasury Bonds Cannot Be Relied Upon in the Future as a Hedge

Investors have often used long-term U.S. Treasury bonds as a downside hedge because historically there has been a negative correlation between bond returns and stock returns. When the economy is faltering, bond prices historically go up and interest rates fall, whereas stock prices go down because corporate earnings will decline. The rise in bond prices will help compensate an investor for the drop in stock prices.

Sounds simple, right? Not so fast . . .

Math geniuses at PIMCO (bond king Bill Gross’ old company) have issued a warning that U.S. Treasuries can no longer be relied upon to protect a crashing stock portfolio. The reason is that the global economy has never fully recovered from the 2008-09 financial crisis caused by sub-prime mortgage defaults.

Long-term interest rates are so ultra-low right now after years of the Federal Reserve’s zero interest-rate policy and billions in quantitative easing – not to mention the negative long-term interest rates which exist in Europe and Japan – that there simply is not any more room for bond prices to rise or for interest rates to fall.

Furthermore, with commodities such as oil looking set to rise in price again after several years of a supply glut, inflation could come roaring back which would cause bond prices to fall even if stocks are crashing.

You simply cannot expect bonds to bail out your stock portfolio. The PIMCO quants describe the situation this way:

“The key to mitigating equity risk in portfolios is investing in assets that are negatively correlated with equity markets yet exhibit the potential for a positive expected return. For most of the past 20-plus years, bonds have fulfilled this role in portfolios, aided by a substantial tailwind of stable or falling inflation. On a forward-looking basis, bonds will continue to be a key part of portfolios, but the potential for both positive expected return and negative correlation with equities may be tested at times. Beyond fixed income, the search for positive-expected-return, risk-mitigating assets becomes more challenging.”

Stock Options are the Solution to Hedging Your Stock Portfolio

One of the asset classes that PIMCO suggests investors could use as a hedge to replace bonds is options, either buying puts or selling calls. Unlike bonds, which can get overvalued and useless as a hedge, options never go out of style and always work if used correctly. The reason is that options are derivatives of an underlying asset, and if that underlying asset declines in price, options on that asset can profit BIG TIME.

You see, options are leveraged tools that don’t cost much money but can offer turbocharged rates of return based on small price changes in the underlying asset. For example, the PIMCO quants say that a decline of 5% in a stock can translate into an option return of 33.2% or more. Perhaps most importantly, the positive gains from options can occur in reaction to negative price changes in stocks, making options the perfect downside hedge.

In both of my option trading services, Options for Income and Velocity Trader, I often recommend option positions that benefit from a stock price decline. In Options for Income, my preferred bearish strategy is a call credit spread and in Velocity Trader, I focus more on bearish put debit spreads. Both types of option strategies do a great job of hedging.

To learn more about these hedging option strategies, take a risk-free trial today to either Options for Income or Velocity Trader.


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R.I.P Bull Market—Here’s How To Protect Your Wealth

I hope you’ve enjoyed the phenomenal bull market of the past eight years…

Because it’s about to come to a screeching halt.

The Federal Reserve’s nearly decade-long spending spree has finally come to an end.

With no other options left at their disposal, the Fed has no other choice than to raise interest rates to keep inflation in check.

And that leaves you with two options…

Do nothing and suffer the agony of watching the profits you’ve accumulated over the years evaporate right before your eyes…

Or reposition your portfolio and invest in companies which prosper as inflation rises and interest rates soar.

I think the choice is clear. And I’ll show you the best new positions you can take if you click here.

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