By Liz Kudwa
A: With the stock market ups and downs, mostly downs, it’s tough to feel secure investing these days. We have many books on investing at the library and I will recommend a few for you. However, to find the most current information on investing tips during a recession, I’ve turned to our databases for some articles. An article from the April 11, 2008 U.S. News & World Report entitled “Recession Investing: Is It Time to Buy? Market strategists offer different approaches to the downturn” by Kirk Shinkle offers some advice. Shinkle notes that since markets are always looking ahead, stocks usually start their declines before downturns appear and recover shortly after economic activity hits bottom. Based on his research, he offers two different strategies for investing now.
Strategy One: Don’t Look Back
John Canally, an investment strategist for LPL Financial, argues that it’s the right time to watch closely for good buys now because of historically strong gains at the tail end of a recession, plus the possibility of an election-year rally. "On average you miss a 25 percent uptick by waiting for the end of a recession," he says. "There’s definitely a penalty for looking in the rearview mirror. You can’t wait until home prices bottom, the recession ends, and the Fed chairman sounds the all clear."
The early-’80s recession lasted from July 1981 until December 1982. Canally says stocks bottomed in August of that year, and from August through December the S&P 500 climbed 35 percent. The same thing happened in the 1990-91 recession when markets bottomed in October 1990, about six months before the recession ended the following March. Stocks returned 28 percent during that period.
This time around, markets hit some of their lowest levels during January, and if the recession is a shallow one, investors could be closing in on a similar midpoint as spring turns to summer. Canally advises investors to go back on the offensive, picking growth companies over value and shares in U.S. firms over foreign shares. New leadership could emerge in large-cap names in growth sectors like healthcare, industrials, and technology, he says.
Strategy Two: Safer Bets
Others are more cautious. Chris Orndorff, a portfolio manager at Payden & Rygel in Los Angeles, says stability is still the way to go for investors, given market volatility. He recommends sticking to the recession playbook: large-cap stocks, safe earnings, and international exposure. "There are always ways to make money, even in a recession," he says. "In a down market, investors tend to place a premium on stocks with more stable earnings prospects. Companies without stable earnings, like a biotech or semiconductor company, tend not to be places where you want to be."
Orndorff favors energy, where prices may fluctuate but long-term high levels of demand aren’t going away. "The days of really cheap gasoline and $40 a barrel are gone, just like nickel soda pop and penny candy are over," he says. Like several other managers, Orndorff likes big names in historically recessionproof sectors like energy and consumer staples. That’s big names like Exxon Mobil and Procter & Gamble , plus some smaller names in those areas. "I wouldn’t be surprised to see us end the year higher than we are now, but still slightly negative. I think this downturn is going to be longer-lived than people think," Orndorff says. He says markets could rebound sometime this year, but he still expects major indexes to end the year in the red.
Here are some economic and investing books from the Capital Area District Library that also may help.
o When Markets Collide: Investment Strategies for the Age of Global Economic Change by Mohamed A. El-Erian
o The Little Book That Builds Wealth: The Knock-Out Formula for Finding Great Investments by Pat Dorsey
o Nolo’s Essential Retirement Tax Guide: Your Health, Home, Investments & More by Twila Slesnick
o Bull!: A History of the Boom, 1982-1999: What Drove the Breakneck Market– and What Every Investor Needs to Know About Financial Cycles by Maggie Mahar
o Pop!: Why Bubbles Are Great for the Economy by Daniel Gross
Elizabeth Kudwa is the Business Reference Librarian at the Capital Area District Library located at 401 S. Capitol Avenue in Lansing, MI. Contact her at 517-367-6301 or by e-mail at kudwae@cadl.org.
