How to Invest in Bonds & Stocks in a Bear Market

Video Transcript

"Hello I'm Roger Groh at Groh Asset Management. Cash is really king. Here we are with the stock markets down substantially over the last two years both in the United States and also in the international markets and stock prices in many case are in half. As you start to think about the yields and the prices it is starting to become very attractive for those who have cash. The question is what do you buy. Well in my mind because you don't know when that recession is going to end it is better today to be a buyer of companies that are likely to continue to sell more of whatever it is that they make despite the recession. Now that may sound kind of corny but for instance food or perhaps electricity or cable TV or water or drugs or the very basic things that you are going to use no matter what. What won't sell in this kind of an environment? Well pick up the paper, nobody is buying houses, nobody is buying cars and as a result companies in those businesses are being crushed. As the economy looks like it is going to start to improve it might be a wonderful time to add those very cyclical businesses but it is just too early to be done. The bond market is a little bit different. Over the last two years bond interest rates have gone from about 7% to 0. As a result US Treasuries on average, long term treasuries over the last 12 months have provided a 26% rate of return. It has been a terrific boom market in bonds. That is not such a bad time to exit. With rates at 0 the capital gains are over. The bulk of your yield has already priced in. Eventually prices will begin to go back up and you will have to make the decision are you going to take capital gains today in lieu of the dividends that are going to come in the future? If you wait yea you'll get the dividends but the value of the bonds will fall. So if you are buying bonds today buy quality, that probably means government bond or guaranteed bond or in a company that is absolutely rock solid and buy them short in maturities to three months maybe to two years with some bonds maturing every quarter along the way so that you regularly have cash coming due as interest rates go up. If you buy 30 year bonds you are probably going to get your head handed to you when interest rates begin to go up again. I'm Roger Groh and that is a little bit about what you buy in a fair market."