The earth goes around the sun, summer follows spring and in the long run, stocks go up. Right?
Well, we can guarantee two of those statements are true but considering the shape of the market we’re starting to lose faith in that last little nugget.
Oh, we know what the bulls say. Stocks are the best reflection of American innovation. Add in earnings and returns from dividends and you should have the king of asset classes.
But in 2008, we're on track for the worst year in history.
Even the most optimistic investment advisors, who once maintained keeping at least 70 percent in stocks, aren’t so sure any more. But gold and bonds don’t look much better.
So what's a long term investor to do? For insights we turn to Doug Cliggott, Dover Management CIO.
In a normal market Cliggot recommends keeping about 70% of your portfolio in stocks. Following is how he usually recommends allocating your money.
Cliggott's Strategy For A 'Normal' Market
Inflation Protected Bonds 10%
Long/Short Strategies 10%
But this market is anything but normal. Currently Cliggot recommends keeping only 20%-30% of your money in stocks, especially if you’re approaching retirement. Following is how he recommends allocating your money right now.
Cliggott's Strategy For Today's Markets
Stocks 20% to 30%
Inflation Proteted Bonds 20%
Long/Short Strategies 15%
"If you look at profit margins over 40 years you see an entire cycle takes about 7 years," explains Cligott to the Fast Money gang. "It goes up 4 years and down 3 years. In the up cycle you make a lot of money and in the down cycle you don’t. Right now we’re 2 years into a down cycle. If this is an average cycle, margins will bottom next winter. That’s when you’d want to get aggressive in stocks."
Cliggott's Picks For Right Now
- Consumer Staples
Cliggott's Picks For The Road Ahead
- Physical Infrastructure
- New Technologies
You might remember that two weeks ago on Fast Money Cliggot said four processes needed to play out before we could once again have a healthy financial system here in the U.S. His recommendations were…
1) Asset prices falling to more normal and sustainable levels relative to incomes
2) The private sector reducing overall leverage
3) Losses fully and honestly recognized
4) A much smaller financial sector will need to be recapitalized
“All four of these processes are now underway,” says Cliggot, “but I believe that they will likely take years not months to play out because it took us years to get into it. ”
As a result he recommends “slowly – emphasize slowly -- over the next 12 to 36 months, moving from a very low equity weighting up towards a normal weighting.”
What’s the bottom line: The only way we’ll really know we hit the bottom is when we see it in the rear view mirror.
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Trader disclosure: On Oct. 24, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (SDS), (UUP), (WMT), (MSFT), (BNI): Adami Owns (C), (GS), (INTC), (MSFT), (AGU), (BTU), (NUE): Najarian Owns (BNI), Is Short (BNI) Calls, Owns (BNI) Puts: Najarian Owns (MS) Put Spread; Najarian Owns (GDX) Call Spread: Seymour Owns (AAPL), (EEM), (MER): Seygem Asset Management Owns (RIO), (CCJ): Finerman Owns (GS), (PM); Finerman's Firm Owns (MSFT), (DEO): Finerman's Firim Is Short (COF), (USO), (IYR), (IJR), (MDY), (SPY), (IWM), (BBT)