No Place to Hide for Equity in Today's Market

Lehman's (LEH) bankruptcy filing sent S&P 500 down more than 4.7% yesterday. Stocks posted big losses in markets across almost all sectors and much of the globe. 

As you can see from data I compiled from the Yahoo Financial site, all major equity ETFs with trading volume over 1 million are down, anywhere from –0.26% for iShares MSCI Malaysia Index Fund (EWM) to as high as –11.94% for Oil Service HOLDRS (OIH). Diversity doesn’t seem to work and there is no place to hide for equity in today’s market.

Fortunately, an old textbook concept still works: A portfolio with a mixture of stocks and bonds. The only major ETFs which were up yesterday were bonds, with iShares Trust Lehman 20+ year Treas Bond (TLT) up as much as 3.08%, along with Gold (GLD).

To truly hedge your portfolio, maybe investors should put 60% in bond, and 40% in equity, instead of traditionally 60% stock, 40% bond. The only free lunch for investors is “diversity”, but not within equity itself, as it becomes more and more correlated, but between equity and bonds.

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