Investor Alert: Arm Yourself Against the Next Market Downturn

Andrew Gordon, Senior Investment Analyst at Investor's Daily Edge, advises investors how to bullet-proof their portfolios against the next market downturn.

(PRWeb) March 15, 2007 -- Is it possible that we've seen the worst of it? When the market corrects during broad upswings, it usually does so in two stages. The first downshift (sometimes called the "dead cat bounce") is followed by a second or "capitulation" downshift. This pattern happened in May and June of '06 and April of '05.

Andrew Gordon, Senior Investment Analyst at Investor's Daily Edge, observes, "I see it all around me. The markets have thrown a lot of investors off their game. And if you're one of them, I bet you want to know why."

He adds, "You have a choice. You can continue agonizing over the state of the global and U.S. markets. I call that avoidance … Or, you can hunker down with your portfolio and take what's happened during the past two weeks as a warning shot. Call it a test run for your portfolio because regardless of what you think may happen tomorrow, you could be wrong. And unless you think the bottom will drop out of the market tomorrow, your crystal ball could spell deep trouble for your portfolio. You need to seek shelter against the storm before it hits."

According to Mr. Gordon, now is the time for investors to figure out exactly how correction-resistant their investments are. Here are four tactics investors should consider next:

1. Divide the investment portfolio into its broadest categories - along the lines of stock, bonds, commodities, and "special" investments (collectibles, jewelry, etc.). Determine how each category did over the past two weeks.

2. Now break the portfolio down further by risk factor. For stocks, blue chips, dividend-paying, and mid-to-large-cap value belong in one group. Growth, Canadian, west-European stocks, and small caps make up the next group. Emerging country and central-European stocks go into a third group. And microcaps, penny stocks, and IPOs constitute the most risky group. Also separate out real estate and put all REITs and other real-estate companies into their own group. Line up bonds in this order: government bonds, munis, government agency bonds, corporate, and junk. If there are bond funds, see what their main holdings are and line them up accordingly. And group commodities by precious and non-precious metals, energy, grains, and other (like cotton, cocoa, or coffee). And put collectibles to the side for now.

3. By doing this, investors should now have a good idea just how far down the risk continuum their holdings have been affected. For commodities, simply get a sense of how they did. For example, it's worth noting that gold didn't offer any protection. When the market slipped, the price of gold also went down, although it has since rallied.

4. Now investors are ready to evaluate their portfolio and consider making some changes. Return to step one and adjust the asset allocation by rewarding the broad categories that did well and cutting back on those that fared poorly. Then, go through the individual holdings and do the same thing.

According to Mr. Gordon, "When you're all done, your portfolio will undoubtedly have less upside. But it will have much more resilience during a market downturn. And for those stocks you choose to keep, enact a strategy of locking in returns earlier than usual." He continues, "If the worst happens, you won't escape unscathed. But you'll do a lot better than 95 percent of other investors."

For more information and to read the full article, visit Investor's Daily Edge at http://www.investorsdailyedge.com/archive/index.php

About Andrew Gordon and Investor's Daily Edge (www.investorsdailyedge.com)

Mr. Gordon has a Master's Degree from the London School of Economics and over 25-years of experience. He's also authored six books on the global markets, including China's Oil and Gas Industry, and The World Coal Market. Mr. Gordon specializes in identifying deep value companies with a solid margin of safety as well as income investments with a strong potential for capital gains. He has also become a leading expert in utilizing Exchange Traded Funds (ETFs) to profit from rising and falling market sectors. Mr. Gordon is is currently the Editor-in-Chief of two monthly investment research services - INCOME and The Wealth Advantage.

Investor's Daily Edge (www.investorsdailyedge.com) is a free investment newsletter that's delivered by email before the market opens. In each weekday issue you'll receive clear recommendations and practical strategies for protecting your portfolio and multiplying your money -whether the market is rising or falling.

For more information about our editors, or to set up an interview, please contact Wendy Montes de Oca at 561-921-0001 or visit www.investorsdailyedge.com.

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