There have been many times in our history that the stock market has gone down or collapsed. The key is preparing for a down market and knowing what to invest in as the economy goes sour. Over the years many experts have had many ideas on what to do once the economy gets weak. Some say that you should buy commodities and others say that you should not invest at all. The basic key to surviving a falling market I think, is to narrow down your portfolio to just a few investments in a few industries. The companies and industries that you use should be resistant to market conditions which we will talk about next.
So you may be asking yourself, what industries are the most prone to thrive even in bad economic times? Many of the industries that do the best in the worst of times have an addiction or impulse attached to them. In other words, during the Great Depression many people were still making impulse buys to get alcohol, and bars were thriving during the depression. Armed with this knowledge, you will have to presume based on my opinion, companies that are based on impulse buying are more resistant to economic problems. Smoking has been around for years and is also based on addiction–impulse. During a depression, there are impulses and addictions with related industries such as beer companies, bars, tobacco companies, adult entertainment and gambling businesses.
There are many other companies and industries that seem to do well in a bad market. Any company that is necessary will always outlast companies that are a luxury. For instance, power companies are needed to heat houses in the winter, and they are needed by the people to survive. The other types of needed companies include food and grocery retail companies, since we all have to go on eating and using a lot of durable goods. Companies will perform well in a down market if they sell goods or services that are necessary to daily life. Oil companies would be another good investment since it is necessary for much of the population to drive and use plastic goods.
Your portfolio in a down market should include the tough companies talked about above in order to make money. You should hedge your bet in a variety of impulse–addiction industries, and couple that with companies that are necessary to survival such as power companies. I have noticed that if you follow these rules in a down market you will notice a much bigger difference in your returns that are based on common sense and previous economic history.
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