Tuesday, January 15, 2008
It was a sunny day in April 2006, and Jean-Francois Page – a 28-year-old geologist for Aurora Geosciences – was staking mining claims near Ross River in northeastern Canada's Yukon Territory. According to friends, Page was "a real bush guy." He loved the outdoors. He loved his job. And he loved the Yukon.
The company claims it warned all of its employees bears were active in the area and told them to use extreme caution. Nonetheless, Page ventured out that day without a gun and without bear spray.
According to the Royal Canadian Mounted Police, Page was walking north along the Ross River when he came within five meters of a bear den containing a mother grizzly and two cubs. The mother bear, probably believing her cubs were in danger, attacked Page.
Bits and pieces of his remains were found two days later – scattered throughout the area.
"It was a violent attack," a spokesman said. "It's not something we're used to seeing around here."
That same spokesman also said the best way to survive a bear attack is to drop into a fetal position, cover the back of your head with your hands, and play dead.
A better idea is to avoid wandering around bear dens in the first place. That's good advice for geologists staking mining claims in the Yukon... and it's good advice for investors.
Shortly after Christmas, the stock market turned into one giant bear den. Investors who dared to wander too close have been mauled. And the shredded remains of their portfolios are scattered throughout Wall Street.
Up until yesterday's rally, the Dow Jones Industrial Average was down 5% for 2008 – effectively wiping out all of the gains from 2007. The S&P 500 was off 4.5% – also erasing the meager gains from last year. And the Nasdaq Composite Index is down a whopping 8% in just eight trading days.
Right now, investors would do well to play dead. Or better yet, avoid the market altogether.
Yes, there are plenty of bargains out there. Lots of good quality companies are trading at single-digit price/earnings ratios. Lots of debt-free stocks are trading just above the cash per share on their balance sheets.
But if we are entering a bear market – I am not yet convinced we are, but it is growing more likely – then cheap stocks will get cheaper. Investors should focus less on finding good, cheap stocks, and focus more on preserving capital.
I'm not suggesting that you can't find stocks that go up in a bear market. You can, and we will. But in the early stages of a bear attack, everything gets hit. Investors are better off playing dead until the bear tires out and wanders away.
Bear markets typically last between six and 18 months. Most of the damage, however, occurs early on. Exercising a little patience right now could be the difference between buying stocks on October 16, 1987 – the trading day before the big crash - and buying them on October 20.
Best regards and good trading,
Gold's climb continues... Barrick Gold, Yamana Gold, Pan American Silver, Goldcorp, and Kinross at new highs.
Monsanto, Mosaic, and Bunge ride the farm boom to all-time highs.
The rich take a hit... Ralph Lauren, Tiffany, Coach, Harry Winston, and Estee Lauder at new lows.