Loading up on one sector is a bet, not portfolio management. Other sectors are cheap, and we all know how the market likes to reverse and make fools out of investors at exactly the wrong time. For those who don’t believe this, recall that 25 months ago, the barrel of oil that everyone loves today traded at a negative value. A bear market is not the time to make bets — on anything.One reason investors sell during a bad market is that they fear the bad times will continue.
Quality is never bad, in a bull market or bear market. Quality companies tend to do better in good times, and less poorly in bad times. There is no shame in selling your riskier companies to focus on better companies. We don’t know how long it will take for the market to recover, and neither do you. Moving up the quality scale in your portfolio will make the bear market — however long it lasts — much less painful.
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund.