Attendees of the BIAS quarterly market briefing luncheon at the Westin Casuarina Resort last Tuesday heard that the chaos of the financial markets might bring good investment opportunities/
However, BIAS Chief Operating Officer Robert Pires believes the market has not yet bottomed out.
‘There are some television commentators… who think the market is close to bottom,’ he said. ‘We think it has a bit farther to go and that it will be six to nine months before all the knots are worked out of this situation. So we don’t want to give you any false hope.’
In addition, Pires and the BIAS group thinks the stock market could take as long as five to seven years to reach its levels of October 2007.
Pires pointed out that the news isn’t all bad for the stock market, however; all bear markets eventually end. Looking historically at the 12 previous bear markets since the Great Depression in 1929, the average length was 19.7 months. The current bear market has been going on for 13 months.
But the average duration of the worst five bear markets since 1929 – in terms of percentage of value lost peak to trough – has been longer, at 31.6 months. The current bear market has seen a 44.2 per cent drop in value since October 2007, ranking it the fifth worst since 1929 so far. This would tend to suggest the bear market might last longer.
The good news is that two of the five highest bear markets in terms of value percentage gained through to peak have been preceded some of the deepest bear markets; and three of the top six longest bull markets have been preceded by some of the longest bear markets.
‘The average bull market following a bear market lasted 58 months and gained 200 per cent,’ Pires said.
Despite the continuing global economic crisis and the belief that the current bear market has a ways to go, the BIAS group still thinks there are some good opportunities right now in the stock market for smart investors.
Pires likened the current economic crisis to the way people sometimes feel after going through a hurricane or other crisis and they freeze in their actions.
‘It’s important in this situation not to become frozen,’ he said.
BIAS Chief Financial Officer Mark Melvin said his company’s tactical response has been to focus investments on individually selected equities in defensive sectors such as healthcare, consumer staples and utilities. BIAS also looks for shares that pay dividends or shares in companies with good growth stories.
Melvin spoke about a company that made generic pharmaceuticals; another involved in waste management; a utilities company in a fast-growing area in the United States; and a fertilizer company in Canada as examples of the kinds of shares BIAS was investing in for its clients.
All of the examples given by. Melvin represented good values,. Pires said.
‘What we’re doing here is… selectively looking for stocks that are undervalued,’ he said.
Factors such as a company’s cash flow and debt levels are also important when looking to buy stock, Pires said.
‘We like if they pay dividends, but sometimes we forego that if the company shows good growth potential.’
Pires stressed that equities in any one of the companies suggested might not increase in value in the short term, and he instead suggesting having a diversified portfolio over the longer term.
He said people should resist selling early even if they held less than attractive corporate bonds right now.
‘You don’t want to liquidate in this climate,’ he said. ‘You want to hold them to maturity.’