IRA Investing: Moving With the Times

Although most investors would definitely like to forget 2008 as quickly as possible, I'm afraid that won't be so easy for most people. Bull market years tend to fade away quickly, but bear market declines seem locked in our memory forever.

Even short but sharp declines like the one in 1987 are still mentioned regularly in the financial press. Ultimately, when this market turns around, people will forget the fear and get a little greedier, thus driving the market higher.

Although I lost money in 2008, it could have been much worse. I ended the year down 12.5% while the S&P 500 suffered a decline of 37.1%. To put these numbers in perspective, it would take an advance of 59% in the S&P 500 to bring it back to even, but I only have to show a return of 14.3% to recoup my losses. I did much better in this latest bear market than I did in 2002, when my IRA declined in value by 24% compared with the S&P's decline of 22.1%.

I have changed a few things about my screening system since the bear market of six years ago, but clearly the move to a high cash position for most of the year was the factor that enabled me to outperform the market. I started the year with a cash position of 11.5%, and by May my cash position had increased to 40%. It remained pretty high for the rest of the year, ending at around 75%.

Although I try to gauge the risk inherent in the market at any given point in time and adjust my cash position accordingly, my best move during the year was simply to listen to what my screening system was telling me. In February, I quit using my monthly screen because it was not finding any ideas to buy at the time and has never found any buy ideas since then. My regular screening system also found fewer and fewer stocks to highlight as the year went on.

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At the time of publication, Moore was long Atrion, Conmed, Iamgold, Lincoln Educational, Southside Bancshares, Smithtown Bancorp, Sybase, USA Truck and VSE Corp., although positions may change at any time.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Atrion, Conmed, Lincoln Educational, Southside Bancshares, Smithtown Bancorp, USA Truck and VSE Corp. to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices. Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback; click here to send him an email.