Bear market investing

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10. Property and gold

Bonds and shares are tradable securities, but investors can also invest in physical assets - in particular, gold and property.

The reason for investing in physical assets as opposed to securities like bonds and shares is that they are presumed to hold their value better.

Taking property first, one of the attractions of holding property is that the falling interest rates that usually accompany a bear market make borrowing to buy a property cheaper and boost property prices. Property can generate significant income from lettings, but their major drawback is that, unlike shares and bonds, they are hard to sell quickly.

Gold is prized for its scarcity and indestructible properties, and for its high value relative to its bulk. Pundits have dismissed the attractions of gold as an investment and its price has languished as some governments have ceased to regard it as a 'reserve' asset, and sold their holdings.

In addition many gold producers have used financial derivatives to secure fixed prices of their output many years into the future, which may limit the scope for the price to rise.

This need not detract from the value of gold as a store of value, although bear in mind that not only does gold not yield income, but it costs money to store and insure.

One alternative to these classic stores of value is to buy shares in companies that are exposed to their price movements. This is not the straightforward option is sometimes seems. Remember the following:

• Property shares tend to perform well in the early stages of a bear market, and many of them can often be bought at a discount to their underlying assets.
• Gold mining shares are more difficult to assess. Investors need to beware of possible political risk and also the fact that some mines may be uneconomic with the metal at its current price.
• In a prolonged bear market, broad based mining companies should be avoided until some form of economic recovery becomes evident, since recession and depression may limit the demand for the materials they produce.
• Natural resources are also typically priced in US dollars, so any weakness in the dollar will have an adverse impact on profits reported to non-US investors.

1. A word on bears 2. What is a bear market? 3. Why do bear markets happen? 4. How to spot the appearance of a bear market 5. How bear markets end 6. Bear market investment options: timing the market 7. Bear market investment options: the asset classes 8. Stocks: blue chips vs small caps 9. Bonds 10. Property and gold 11. Cash 12. Stocks: general principles 13. Bear-proofing - low 'beta' stocks 14. Bear-proofing - high yield shares 15. Bear-proofing - sectors that historically do well in bear markets 16. Bear-proofing - sectors that historically do badly in bear markets 17. Bear-proofing - key ratios for selecting stocks 18. Bear-proofing - investing in stocks you know and can support 19. Bear-proofing - pound cost averaging 20. Recognising the revival - a check list 21. Conclusion

• The Bear Book
• Stan Weinstein's Secrets For Profiting in Bull and Bear Markets