Should You Go to Cash?
Written by: Aaron Katsman | January 21, 2008
Aaron Katsman
www.IsraelNewsletter.com
With today’s bloodbath in Asia and in Europe, investors want to know what should they do? Should they panic and sell everything and move into cash, or should they hold on and keep absorbing large market losses?
Obviously if I actually could predict the future, I wouldn’t be blogging. Rather, I’d be sipping some kind of drink with an umbrella in it. But while none of us can see into the future, examining data from the past may help us shed some light on the current market situation.
An interesting article in this weekend’s Seattle Times spoke about previous market reactions to recessions. Whether we are in one or not is subject for another post. Recessions on average last 216 days, or just over seven months, and stocks post an average 8.64 percent decline during the first half of the pullback, according to Citigroup(C) data dating back to 1953. That actually doesn’t sound too bad compared to the 16% we are down from high in October. Anyway, we are about half way through this cycle.
So what’s the good news? While the first half of a recession can punish stocks, the second half tends to reward investors. During the nine recessions dating back to 1953, S&P 500 stocks have gained 13.17 percent on average in the latter half of a recession, according to Citigroup.
Let’s hope history repeats itself again this year.
Disclosure: Author’s fund has no position in any stock mentioned as of 1/21/08.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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