Most financial planners and mutual-fund portfolio managers advocate staying fully invested, at all times, in either stocks or a broadly diversified portfolio of stocks, bonds, commodities, and real-estate investment trusts (REITS).
I, on the other hand, have always considered such an approach to be foolish. That’s because during different phases of the economic cycle different asset classes and sectors of the economy tend to perform differently. For example, during economic downturns, stocks, commodities, and REITS tend to fall sharply while bonds tend to rise.
Likewise, during periods in which economies expand at a rapid rate, bond prices tend to decline in response to increases in interest rates.
Make 12.3% Without Touching Stocks, Bonds, or CDs . . .
Therefore, I usually recommend for investors to buy stocks, especially stocks of technology companies and financial companies, during the early stages of economic recoveries, and to continue to hold those stocks until a vast array of economic indicators suggest that an economic expansion is nearing an end.
I advise investors to buy stocks of technology companies and financial companies because the stocks of those companies tend to perform best during such environments.
During the middle stage of economic expansions, however, I usually advise investors to invest a portion of their money into stocks of industrial companies and providers of basic materials (such as providers of oil, coal, and industrial metals), because the stocks of those companies tend to perform best during that stage of the economic cycle.
Once clear signs emerge that an economic expansion is nearing an end, or that economic growth in the world’s major economies is likely to slow considerably, I generally advise investors to sell their holdings of stocks, commodities, and REITS.
I then urge investors to use the time between economic downturns and the beginning of new expansions to create a list of stocks that will likely generate substantial investment returns once a new expansion begins.
With numerous economic statistics now indicating that economic growth in the United States and several other regions of the world will slow considerably during the remainder of this year — and recent trading action in the financial markets indicating that the better-performing stocks over the past two years are currently in the process of peaking — my experience suggests that now is the time to sell stocks and to create a “watch list” of future investment candidates.
Here’s my own watch list
If you’re seeking some stocks to possibly include on your watch list, I suggest that you consider the following:
• Skyworks Solutions (SWKS)
• Rubicon Technology (RBCN)
• Cyberonics (CYBX)
• Varian Semiconductor (VSEA)
• Accuray (ARAY)
• DexCom (DXCM)
• Volcano (VOLC)
• Lumber Liquidators (LL)
• Nuance (NUAN)
• Veeco Instruments (VECO)
• OmniVision Technologies (OVTI)
During the weeks ahead, I’ll provide you with some key information on each of those companies and the reasons that I think their stocks will perform well once the U.S. economy begins to grow at a faster rate.
I’ll also provide you with some information on some stocks of emerging market companies that I’m currently monitoring.
About the Author: David Frazier
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