From The No Load Fund/ETF Files: Can Your Portfolio Weather An Economic Downturn?

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It has happened again. Every so often a new book appears on the market that depicts impending gloom and doom. The latest one is Peter Schiff’s ‘masterpiece’ called “Crash Proof: How To Profit From The Coming Economic Collapse.”

Schiff, who owns an investment company, has been predicting bad economic things for a while and has been frequently quoted in Orange County (California) newspapers. He took his prediction of a severe real estate collapse to heart a few years ago, sold his house and relocated somewhere in the mid-west, where he is now ‘renting’ and ‘raving.’

In an interview with MarketWatch he says the severe real estate downturn is underway and the “mother of all recessions” is to follow.

While I don’t pay much attention to any kind of prediction, it brings up the question as to what you can do to weather an economic downturn, and a subsequent bear market, should both ever come to pass.

First, a downturn does not start with a bang overnight. It starts with a slow deterioration of stock prices followed by the occasional rally attempt. You can be fairly sure that, once prices have been pushed down and the media (or your broker) tells you this is ‘a great buying opportunity,’ the party will be over.

Second, if you follow my trend tracking methodology, and monitor your trailing stop loss points, you are automatically limiting your downside risk. There is no need for you to guess what the markets might do. If you get stopped out, great; it’s time to take profits and look for other opportunities. Our momentum tables will tell us if there are areas that buck the recession that might offer investment possibilities.

Bottom line is: Stay away from any kind of predictions. Wall Street is littered with dead bodies who at one time in the past decided that they could look into the future.

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