Fix Your Portfolio Now!

Fix Your Portfolio Now!
By John Rosevear November 20, 2008 Comments (5)

"The world breaks everyone and afterwards many are strong at the broken places. But those that will not break it kills." -- Ernest Hemingway, A Farewell to Arms

I've never had much fondness for Hemingway, but I always loved those lines, which I freely interpret to mean something like, "Everyone gets roughed up by experience. If you learn from it, that roughing up can be of great value. If not, be prepared to get roughed up again and again."

The market roughs everyone up, too. Yes, everyone. Even Peter Lynch and Warren Buffett have taken huge lumps from time to time. Not for nothing does investment manager and author Ken Fisher refer to the market as "TGH" -- the Great Humiliator.

And wow, have we been roughed up lately. It's not over, either -- while it's possible the stock markets have found their low points, there's clearly a rough economic grind ahead. If you're an employee of Citigroup (NYSE: C), General Motors (NYSE: GM), or any other company that's discussing difficult cuts and painful reorganizations -- and not too many companies aren't -- things could get a lot rougher from here.

But even if you stay gainfully employed in a job you love until it's time to retire many years from now, your portfolio has probably taken quite a hit lately. What can we do to make the most of what we have left?

Taking a hard look at where you're at nowIf you've avoided looking at your portfolio recently, that's understandable -- but in order to take action, you need to know how much damage you've really taken. And yes -- now is the time to take action, while the markets are staggering, while other investors are demoralized.

Yes, now. Just about everything is down right now. High fliers and sturdy recession-resistant businesses alike are sitting near their 52-week lows. And while the latter have, generally speaking, fallen less than the former, they're also more likely to make you some money between now and the end of this mess. While there are a number of steps you can take right now to improve your portfolio, a move to better stocks is one that could deliver the biggest rewards.

Buys for right now

How can boring stocks make you money while the market is down? With dividends, of course! While it's true that no dividend is safe in a really deep recession, the ones paid by boring-basics businesses are less vulnerable than most. Kleenex kings Kimberly Clark (NYSE: KMB) are sporting a 4% dividend yield at current prices. Pharmaceutical cash machine Pfizer's (NYSE: PFE) yield is 8%. On the other side of the health coin, Altria (NYSE: MO) sports a yield that's also approaching 8% -- and speaking as an ex-smoker, I can attest that demand for cigarettes isn't likely to dive too much in the face of something as nerve-wracking as a massive worldwide economic meltdown.

On the other hand, there's a good argument for buying the beaten-up high fliers that are likely to fly again here, while they're cheap. As I write this, Apple (Nasdaq: AAPL) is within a few cents of lows it hasn't seen since early 2007. Marvel Entertainment (NYSE: MVL), a company thought by many to be in the early stages of a long-growth trajectory, is also closing in on 52-week lows. If those two manage to hold the line in the near term and recover their growth mojo in the longer term, buying them here could look like genius in a couple of years.

Those are big ifs, though. With so much uncertainty, it's important to step carefully.

One way to maximize your chances of a good buy in this difficult environment is to stick with opportunities vetted by experts with a good track record. The team at the Fool's flagship Stock Advisor newsletter has been through the recession wringer before, and is sifting through the post-crash rubble looking for the best buys in all corners of the market.

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Fool contributor John Rosevear owns shares of Apple. Pfizer and Kimberly Clark are Motley Fool Income Investor picks. Pfizer is a Motley Fool Inside Value recommendation. Marvel Entertainment and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Pfizer. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure The Motley Fool's 2 Top Stocks

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Comments from our Foolish Readers
Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On November 20, 2008, at 5:16 PM, SteveTheInvestor wrote:
Stock Advisor? Oh... you mean the portfolio that's down what, 16% after 6 or 7 years? Doesn't inspire much confidence if you want some honesty. When we should have heard suggestions to pare back on stocks, all we got was "buy now" because they are "on sale" and "poised to pop". I got whacked big on Stock Advisor stocks but if I had not finally chosen to ignore the advice and sell some things, my losses would now be double or triple that.
Yeah, I know.... think long.... and here's what Warren said. Based on the history, I guess you need to be about 20 years old to have a long enough time frame, huh? And Warren? Frankly, I don't care.

Report this Comment On November 20, 2008, at 6:04 PM, PapaRossi wrote:
I fixed my portfolio, I sold off all of the MDP stocks and resigned my membership and my portfolio went from neg 8% to a pos 87%.
After numerous warnings to the MDP about the future direction of the stock market which were ignored by the team and laughed at by the fools.......Well Papa's laughing now...;-))

Report this Comment On November 20, 2008, at 6:27 PM, DefinedRisk wrote:
I wouldn't buy anything without some downside protection. What indicates that this is the bottom? How much worse can it get? I don't know, but going forward using the old fashioned 'buy & hold' or 'modern portfolio theory' (yes that is now old fashioned to me) principles is suicide. Defined Risk Strategies have proven effective since 1997. They eliminate most of the downside risk and participate in market growth.... what could be better? Learn more: http://www.swanconsultinginc.com/

Report this Comment On November 20, 2008, at 7:23 PM, fe3lixallen wrote:
comments....
This one is good:
"if you want some honesty. When we should have heard suggestions to pare back on stocks, all we got was "buy now" because they are "on sale" and "poised to pop"'
this one is good also..
"Yeah, I know.... think long.... and here's what Warren said. Based on the history, I guess you need to be about 20 years old to have a long enough time frame, huh? And Warren? Frankly, I don't care."
Hey guys.. don't you get it? Buy and hold and think "long term". Reeeeeeal long term. Ha ha.
Lots of college educations and retirements may have been ruined. But, "long term", who cares? Not TMF, apparently.
Long term.. we are all dead.
TMF should have seen what was coming ecomically. What's worse, they are seeing the confirming "data" now and still not doing anything about it. TMF had no plan for an extended bear market - and they have none now. They keep saying "no one knows which way the market will go". But, doesn't common sense tell you that in an environment of world-wide deteriorating economics the bet "down" would seem to make more logic than the bet "up".
No rocket science degree necessary.
If you don't know how to deal with another big, big drop - it's time to "get out" or seek other advise. There is a very real possibility (not high probability but real possibility) for another 200 S&P point decline. If you want to, and can afford to take the risk - do so. Otherwise, put your money in a guaranteed savings account and save what you have left.
.

Report this Comment On November 21, 2008, at 10:11 AM, TheDash9 wrote:
I'm liking Muni Bonds these days. http://www.molifeney.com/content/view/120/57/

http://www.fool.com/investing/general/2008/11/20/fix-your-portfolio-now.aspx


Comments:

Not unexpected comments.
It is difficult for investment advisors in this difficult period.
Consequences and not probabilities should determine the actions taken by each investor.