5. Follow the News

This one may seem obvious, but you’d be surprised just how many people choose to ignore current events and still expect to walk away from market catastrophes unscathed.

More often than not there’s some indication of impending doom before giants like Lehman Brothers and AIG crumble. After Bear Stearns’ collapse, for example, Lehman stayed almost flat for a couple of months. While most didn’t think that bankruptcy was as imminent for the latter, it has to be said that the writing was on the wall. And it’s been more than a passing fancy.

4. Understand Business Cycles

Fool me once, shame on you, fool me twice, shame on me…

Every year, scores of investors get fooled into thinking that that history won’t repeat itself again and again. It’s true that historical gains don’t dictate a stock’s future performance, but when it comes to business cycles, revenues fluctuate like clockwork.

If you’re investing in a cyclical industry like retail or autos, then look at the trends; chances are you’ll see them again in the future.

3. Look Somewhere Else

In the beginning of 2008, investors flocked to overseas investments in India and China for good reason – those countries weren’t experiencing a recession!

If the U.S. stock market isn’t an attractive place to put your money, consider sinking some in other places that are enjoying better times than we are at home. Often, foreign stocks are traded on U.S. exchanges as ADRs (American Depositary Receipts), meaning that you can buy and sell overseas issues like China Mobile just as easily as Verizon or Sprint.

China and India are seeing tougher times now, but there are other economies that are faring a bit better… Now’s not a bad time to take a look.

2. Ask Questions

If you’re at a loss of where to put your money in an economic downturn, remember, there’s no such thing as a dumb question.

There are tons of resources available – from the websites you visit to the magazines you read, asking an expert a question is a “nothing-to-lose” proposition. And if you’ve got a personal financial advisor, ask away… that’s why you’re paying them.

1. If All Else Fails

When you’ve exhausted all of your other options, it’s time to fly to quality. In other words, switch from investments you’re in right now to ones that are less risky.

If you’d rather guarantee a modest 3% return than fight it out for higher profits, moving to safer investments is a decent solution until the dust clears. At least you’ll still have money to invest when the bargains start popping up.

Cheers,
Jonas Elmerraji

December 30, 2008

Five Investing Tips for the Economic Crisis was originally featured in the Penny Sleuth.