The immediate market sell-off that occurred after the attacks of the World Trade Center and the Pentagon has given way to a short-term rally. As the bombings on Afghanistan began last week, so did the turn-around in the markets.
The New World in which we live requires a new set of rules for investing. Gone are the simple adages of “buy on the dips” and “don’t fight the Fed.” What are some of these new rules?
Charles Payne of Wall Street Strategies says that markets react to two different kinds of catastrophes: financial, such as the Asian meltdown, or an attack, like Pearl Harbor or the World Trade Center/Pentagon tragedies. Charles feels that even before the attacks, the U.S. markets were reacting to financial catastrophes, with the economy in a real slow down, and the attacks just heightened the sell-off. Now that the bombing campaign has started, it is time to possibly be aggressive on the way down, and the markets will turn if the war is successful.
Dagen McDowell of SmartMoney says don’t give up on stocks. She notes that the temptation to sell is strong right now with the weakness in the economy and the sell-off in the market post September 11. But she does believe that in time the both economy and the stock market will rebound, and that stocks are still a better place to be invested, as opposed to bonds.
Jonathan Hoenig from Capitalist Pig Asset Management says that he is following the “law of inertia,” or going with what is working now. He likes real estate investment trusts (REITS) as an investment, saying that REITS were performing well before the attacks. He also likes the fact that they are starting to be included in the S&P 500. “Cashin’ In” host Terry Keenan does point out that REITS are an extremely defensive play.
Hilary Kramer from the Cisneros Group would still invest in the stock market, but she would take a more defensive approach. She likes companies with dividend yielding stocks and strong earnings growth. And she likes companies that produce “staples” for consumers, making products that will be in need, whether we are in war or at peace.
Jonas Max Ferris of Maxfunds.com takes his new rule from Andrew Mellon, the 1920’s financier, who said, “gentlemen prefer bonds.” And Jonas thinks that you should have some of your portfolio dedicated to bonds. He says investing only in stocks is a bad idea, and while bonds are a more conservative play, a diversified portfolio including bonds is the right call.
A few members of the panel offered up some picks based on their new rules:
Hilary: Philip Morris (MO)
Jonathan: Weingarten Realty (WRI)
Charles: Symantec (SYMC)
Mutual Fund Face-Off
Topic: The best sector fund?
Panel: Dagen McDowell and Jonas Max Ferris
Dagen – Dresdner RCM Global Health Care Fund (DGHCX)
Jonas – American Century Global Natural Resources Fund (BGRIX)
Dagen and Jonathan wrapped up the show by answering some email question from viewers:
Question #1: “After the destruction of the World Trade Center, is the U.S. economy ever going to be the same or as good as it was between 1997-2000?”
Jonathan: Both the economy and the stock market will recover, but it could take a long period of time.
Dagen: The economy will recover sooner that we think; the rate cuts by the Fed have to kick in soon.
Question #2: “Are the ‘Dogs of the Dow’ (the highest-yielding stocks in the Dow Jones Industrial Index) good stocks to buy in a shaky market?”
Dagen: It’s a good strategy in an unsteady market.
Jonathan: Take a look at Eastman-Kodak (EK)
Question #3: “Do you know of any online brokerage accounts with low transaction fees and no monthly charges for a new investor with $500?”
Jonathan and Dagen: With that small amount of money, stay away from stocks and look into mutual funds. Many allow you to open accounts with just $500 as long as you commit to adding money on a regular monthly or quarterly basis.
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