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December 3, 2008 Taming a Ferocious Bear
Not since the darkest days of the Great Depression have investors contended with such a high degree of uncertainty and extreme volatility in the markets. Trust in the financial system has been replaced by suspicion, and greed superseded by fear. In short, we have seen a dramatic loss of confidence in the banking and financial sector — spilling over into a sharp contraction in the overall economy. This financial crisis has, by no means, been restricted to the U.S.
In the U.S., the Treasury Department, Federal Reserve, and other government agencies have pumped TRILLIONS of dollars in fresh cash into the financial system to combat this crisis. But so far, these unprecedented measures seem to have done little — if anything — to relieve stress, let alone restore any measure of stability in the financial markets. As a result, American consumers are facing a severe recession, perhaps even worse than the “double-dip” recession in the early 1980s; or worse, the 16 month downturn from 1973 to 1975.[III] Analysts are even comparing the current crisis to the deflationary spiral of the 1930s during the Great Depression or to Japan's prolonged economic malaise of the past twenty years. At Weiss Capital Management, our portfolio managers have been hedging against this crisis for many months: reducing our market exposure, raising cash, and using "hedge" strategies, such as inverse mutual funds and ETFs, which are designed to go UP in value when the markets go DOWN. Being “Greedy” When Markets are “Fearful”It is important for our clients — and prospective future clients — to understand that the majority of our managed investment programs have the flexibility to add "hedged" positions as market conditions warrant. This provides us with flexibility in a bear market climate like we have today. It also affords us the opportunity to reduce risk and earn potential gains amid further market losses. In recent months, we have taken proactive measures in our investment strategies to build a defense for your wealth. Our primary goal right now is to focus on preservation of capital... even as we seek out opportunities to grow your wealth. Granted, conditions are difficult given the unknown response by the government and the new administration. However, this doesn't mean you should just throw-in-the-towel and sell your long-term investments now that the markets are already down significantly. 
Instead, it's worth remembering, at such a stressful time, that the emotions of fear and greed can lead you to make the wrong decision at exactly the wrong time. Warren Buffet recently repeated some good advice that's especially important to keep in mind for today's volatile markets: "You want to be greedy when others are fearful," and "you want to be fearful when others are greedy." Investors are certainly fearful at present, but a closer look at market history can put things in better perspective. The average bear market return in stocks since 1900, taking into account over a century of historical data, is a loss of -34.4%.[IV] So at this juncture in the current bear market, we have already seen "greater than average" selling in stocks. Of course, markets can always fall further than you expect (in 1932 stocks plunged a jaw-dropping -52.7%[V]), but stocks now appear more attractively valued than they have for decades by a number of measures. This makes equities much more appealing for long-term investors. Peering Into 2009While no one has a crystal ball to perfectly forecast what's around the next corner, or to tell you if stocks will fall even further in 2009, there ARE strategies you can use to help defend your investment capital. You may not hear straight-talk like this from other brokers or investment advisers these days, because much of Wall Street is still in denial.
At Weiss Capital Management, we have the experience to recognize a bear market environment and the expertise to help you grow and protect your wealth, even in challenging market conditions. We have navigated declining markets before, and have developed strategies designed especially for tough market conditions like those we are in today. We are one of few investment advisers we know of that offers clients an investment strategy that is tailor-made for markets like this: The Weiss Bear Strategy! This professionally managed investment program uses inverse funds and is specifically designed to go UP in value when stocks or bonds are going DOWN. We also offer a program that's geared toward preservation of capital by investing primarily in ultra-safe U.S. Treasury securities: The Weiss Managed Treasury Program. We believe this strategy offers you a potentially secure way to invest your cash in turbulent financial markets. If you are concerned about your investments and would like to find out more about our full range of Weiss Capital Management investment programs, call us at: 1-800-814-3045. Our Advisors and Portfolio Managers are always here to answer your questions. Going forward, we intend to keep you up-to-date with our thinking on market conditions each week in Weiss Advice. Our mission is to find and share our best ideas and insights that can help you defend and grow your wealth. So be on the lookout for the next issue of Weiss Advice coming soon. Good Investing,
[I] Bloomberg market data: 12/01/08; Stock Trader's Almanac, 2005, page 160 Weiss Bear Strategy Complete Performance:
Net returns are based on a composite of actual client accounts and include actual management fees, commissions and other similar fees charged on transactions, and reinvestment of dividends, income and capital gains. S&P 500 Index: The S&P 500 assumes the reinvestment of dividends and capital gains, and excludes management fees, transaction costs and expenses. It is not possible to invest in an index. Past performance is not indicative of future returns and, as with any managed program, it is possible to lose money by investing in this strategy. For more information, read the WCM Form ADV Part II and program materials before investing. |
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The year 2008 will likely be remembered as one of THE MOST turbulent periods in financial market history. Through the end of November, the Dow Jones Industrial Average tumbled 33.5% — on track for its worst yearly decline since 1930
In fact, global investors have so far LOST more than $32 TRILLION in stock market value as a result of this crisis.[
In fact the biggest U.S. banks and brokers are knee-deep in this crisis. Several have already failed, and you can almost certainly expect more to go bust. Wall Street and Washington can't even agree on the steps needed to solve this crisis, let alone provide you with a bear market defense plan... but we can.
