Our advice is to play it safe - take advantage of the buoyant share prices this rally has gifted us and sell. If you’ve bought stocks that on second thought look shaky, now is a potentially profitable time to offload them. Why? Well if history is any guide (and it has been so far) we’re about to fall back once again...
The 1930s Great Depression is the downturn the current crisis mirrors most closely.
The chart below maps the many bear rallies in the 1930s stock market. Despite several instances of rising prices, in one case as far as 48%, the dominant trend was downward...
Lessons from history - In the 30’s investors were punished by the bear rallies
You have to remember that despite bullish soundbites from world leaders in recent weeks we haven’t actually seen a turnaround. Industrial production and GDP continue to fall and unemployment continues to rise. Therefore, until further notice, you should sell any bad stocks in your portfolio while the opportunity’s still around...
If nothing else, the above chart demonstrates the danger of buying the index rather than individual stocks. While bearish, I wouldn’t for a second recommend you sell all of your stocks, just the least defensive positions. A good stock picker can win even in a downturn.
Editor’s recommendation: As investment director of The Fleet Street Letter, Theo Casey is currently advocating caution on four fronts. Click here to read his latest report, "What Happens Next?"
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