Why I'm Exiting Energy and Materials -- and Buying Consumer Staples

NEW YORK (TheStreet) -- Warren Buffett once said that "a public opinion poll is no substitute for thought." Said differently, people should make up their own minds and not be driven by what the herd is doing.

As much as I value the fundamental principles of that statement, I can't help but to listen from time to time at what the word is on the Street. The fact of the matter is, as much as I am an advocate of investors placing more value on their own convictions above anything else, it does serve to pay attention to the polls -- or more specifically, how the market is voting with their positions.

Two things come to mind upon looking at the chart below. Aside from the obvious that we are now in a bear market, I have become convinced that I need to exit my positions in energy and materials. The second observation is that consumer staples have become the safest of all the sectors.

The chart to the left shows that although every sector (regardless of group) has been punished over the past several sessions, the staples hold the distinction of being "less bad" -- and sometimes that is just good enough. In fact, the chart to the right shows just how resilient the sector has become since the start of the second-quarter.

What this tells me is that investors have begun to rotate money out of both energy and materials and have instead opted for the safer, slower yet steadier performances of the staples. With the famous and somewhat psychological effect of "sell in May" now in full swing, there is evidence to suggest that investors will continue to reduce their exposure to risk for at least the next several quarters.

But at some point being long cash gets a bit boring as it is known to burn holes in some deep pockets. The result will be a re-entry into the market where the following names will become highly considered for their moderate growth while also providing the peace of mind that comes at a premium in severe bear markets.

1 2 Next › Last »