Places to Hide in Market Downturn

Markets finished up 3 days in a row and we are cheering like it is up 500 point!  Funny how emotion ends up in all the television analysts that discuss how good or how bad the market is at this time.  One thing I have learned over the years of investing, is that once you start trading on emotion, you lose a bunch of money quickly. 

Now something else that I will say that you will not hear too many others say is that I really am not sure which direction the market is going to go in the short term.  I was very confident 1000 points ago that the market was going to correct.  I said go short on Opentable and buy VIX calls while raising cash.  Those that listened to me did very well.  I closed out my short position today on OPEN making over 35 bucks per share….not too shabby.  I still have some long positions but am sitting with a bunch of dry powder (50% of my trading portfolio is in cash) and still have a ton of volatility options as a hedge.

So where am I putting my positions now for that other part that is not in cash?  High dividend stocks.  This is a great place to hide while a market is correcting and especially if you are not confident in the direction of the market like I am now.  I am putting together a shopping list of high growth names that I like long term (read some of my other articles on DANG, GMCR, UA, DECK, GOOG, etc), but these stocks tend to get hammered in down trends and really appreciate in market up turns.  So if we miss the exact bottom on these I am good with not taking on that risk now. 

The name of the game is to minimize risk and you do that with boring old dividend stocks.  Look at Altria, AT&T, Reynolds America, Annaly Capital, Eli Lilly, Bristol Myers, and others.  They are all sitting with a few percentage points of their 52 week highs with the biggest dividend (a whopping 14%) of these Annaly hitting a new 52 week high today!  So what does this mean?  This means boring old dividend stocks have been grossly outperforming the entire market in the last 2 months while paying a beautiful dividend to wait out the storm.  Oh yeah, and remember in that 8 week period the market is off right around 10% on the averages with tech getting hammered.

In my opinion, I think the market still has further to go on the downside and until something happens which makes me think otherwise, I am going to ride out these names and get paid to wait.  I mentioned before that we will not start to go back up until oil breaches and stays below the $85 mark.  That will get a bunch of the speculation out of oil and might move some money into stocks.   But we are still on a 9 handle in oil so have futher to go.  Trust me, I will be the first to tell you when I think we get the all clear to move back into high growth high risk equity names, but until we get those signs I remain cautious. 

Cheers,

Vinny