2. Stay out of gold. I understand the argument that gold is insurance against capital market instability. I get that. But would you buy insurance on your home after it already had burned down? Or on your car after it already had been totaled? In the real world of insurance, no agent would sell you a policy after the event has happened, but in the financial world, "agents" are all too happy to do so.
Remember, gold has no "intrinsic value" as it pays no income and has no earnings. So, it is impossible to ever say whether gold is "cheap" or "expensive." All we can say is that gold has been in a raging bull market for more than a decade, and its price action is starting to look like a lot of other financial bubbles we've seen in the past.
If you missed out on gold's recent gains, you're probably kicking yourself. Don't. Once the dust settles, it is likely to be the gold bugs who are kicking themselves. I recommend avoiding gold, but more adventurous traders might want to short it, like Treasuries, in the futures market or using an inverse fund like the PowerShares DB Gold Double Short ETN (DZZ).
3. Use this as an opportunity. Buy some of the solid blue chips you've been itching to buy "if only they were a little cheaper." I recommend American and European companies with rock-solid balance sheets, consistent dividends and a large presence in emerging markets. These are the kinds of companies you know will survive this mess intact. If you end up being a little early, what of it? If you buy a good company at a good price, a little short-term volatility is nothing to be afraid of.
Some stocks to consider as value buys include: Nestlé (NSRGY), Unilever (UL), Johnson & Johnson (JNJ), Microsoft (MSFT) and Intel (INTC). I should mention that Microsoft and Johnson & Johnson now have a higher credit rating than the United States of America!
I understand it is scary out there. But it is times like this when an investor can differentiate him or herself by taking a bold, contrarian stand. Use the current mood of hysteria to your advantage. Sell down your expensive bond and gold holdings and reallocate your funds where you can find real, durable value. Charles Lewis Sizemore, CFA is the editor of the Sizemore Investment Letter , and the chief investment officer of investments firm Sizemore Capital Management.
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