When it comes to the stock market, I know a lot about bears. And despite this nasty sell-off we’ve had lately, this is no bear.
My wife and I have very different opinions as to what makes a nice vacation. Her ideal getaway is a hike through the woods, winding up at a nice spot to pitch a tent, cooking dinner over an open fire and hunkering down in our sleeping bags for the night.
I, on the other hand, prefer to sit by the pool (or ocean) sipping a colorful drink that has an umbrella in it, dining at a nice restaurant, catching a show and then going to sleep in our luxury hotel room.
So this year, once again, we had the ongoing debate about what to do this summer. So we reached a compromise…
We’re going camping.
And this year, we’re going to be camping in an area known for bears. Those animals scare the heck out of me. With one kind of bear you’re supposed to play dead, another you’re supposed to scare it away. I have no idea which is which.
I don’t know if it’s the color, the snout, or how you’re supposed to identify them. I know nothing about bears, other than that I don’t want to come across one.
But when it comes to the stock market, I know a lot about bears. And despite this nasty sell-off we’ve had lately, this is no bear.
Watching Stocks Bleed Every Day
The market is off 7% since May 1 and has fallen 12 of the past 15 days (as of Tuesday morning). It’s been painful to watch stocks bleed every day like a fighter who’s been cut and keeps getting hit in the same spot over and over.
But that’s not how bear markets usually work. They usually don’t have those drops that feel like a punch to the gut. A bear market typically dribbles lower until one day you wake up and realize you’re down 20%.
Bears usually appear when investors are optimistic. That’s hardly the case right now. According to the American Association of Individual Investors Sentiment Survey, only 23.6% of investors are bullish, while 46% are bearish. The bears are up 3.9% from last week. The long-term average is 39% bullish against just 30% bearish.
A Franklin Templeton Global Investment Survey found that 45% of respondents are more risk averse this year and only 20% would consider becoming more aggressive in their portfolios in 2012.
Combing the financial websites, it’s hard to find someone recommending that investors buy stocks.
In other words, investors are scared, and that’s usually a good time to pick up some cheap stocks. There may not be outright panic quite yet. The bottom may still be a little further down, but it’s probably a good time to start nibbling at some stocks that you’ve had your eye on for a while but wanted to wait until prices went lower.
Take Advantage of Higher Yields
For example, some of the stocks in my Perpetual Income Portfolio whose yields declined as the stock prices rose, once again have attractive yields.
One I really like, Community Bank Systems (NYSE: CBU), is a great little bank based in upstate New York and Pennsylvania. It’s currently yielding 3.9%, that’s up from 3.5% just over a month ago when the stock was trading several points higher (although Ultimate Income readers are enjoying a yield of 4.7% if they bought it when it was first recommended in September).
Could the market head lower from here? Of course it could. We’re not market timers at Investment U, so I’m not going to make a prediction. However, I will say this certainly doesn’t feel like a bear market. Instead it feels like an opportunity to leg into some positions, particularly for income seekers who felt shut out over the past few months as income stocks’ prices rose sharply, making obtaining an attractive yield difficult.
Thanks to this sell-off, it just got a little easier.
Now, if anyone has any suggestions on where to find bear repellent (for real bears), I’d appreciate it.
Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.