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You've
heard the refrain: Buy and hold.
The idea
is that although stocks might be declining, you can't
determine how long the pain will last. And ultimately
you want to have some money invested in stocks or stock
funds so you are ready to catch one of the benevolent
periods that invariably will arrive and make your money
grow.
You might
recall the last excruciating period. Stocks fell about
57 percent from late 2007 to early 2009. In March 2009,
the recovery took investors by surprise and lifted the
stock market about 70 percent into the next spring. That
surge didn't fix all the damage, but it sure helped.
Keep in
mind, if you intend to live by the buy-and-hold motto,
that doesn't mean you have to hold on to everything. It
means you don't flee the stock market completely but
don't have to embrace a mutual fund that's been
unreliable. Funds vary. Some are more aggressive and can
be extreme losers in down periods. Others are more
defensive , more steady. They lose money too in a bear
market , when stocks fall 20 percent or more , because
bears tend to maul the entire stock market.
But some
funds have long track records of weathering rough
periods better than others. You might call some of these
"defensive" funds. If you are looking for one,
Morningstar mutual fund research director Russel Kinnel
provides this list:
STOCKS
AND BONDS COMBINED
For
especially conservative investors, there is the Vanguard
Wellesley Income fund. It combines stocks and bonds, so
that during bad periods in the market, the bonds provide
a buffer against stock losses. Yet investors also can
take advantage of strong periods in the stock market.
During
2008, when the stock market fell almost 40 percent, the
average fund that invested in stocks and bonds lost 22
percent. This one was a standout, losing just 9.8
percent. It ranked in the top 10 percent of funds like
it, and this year it recently had been up about 4
percent. That placed the fund in the top 2 percent of
funds like it.
Still,
realize this fund has about 60 percent invested in
bonds. That's fine now, but as we get through this
jittery period and interest rates rise, the bonds could
hold you back.
Another
fund that combines stocks and bonds, but is a bit more
aggressive, is FPA Crescent, which Kinnel notes
"has a really outstanding long-term record."
Manager Steve Romick holds cash, bonds and stocks and
looks for opportunities to buy stocks or bonds without
taking significant risks, says Kinnel. In 2008, it lost
20.5 percent but ranked among the top 10 percent of
funds that combine stocks and bonds. This year, it
recently had been down 2.2 percent, ranking in the top
17 percent.
SEARCHING
FOR BARGAINS
When the
stock market is down, it can provide opportunities to
buy high-quality stocks at a low price, but as the
market remains down, investors may not see the results
for some time. Kinnel notes that Longleaf Partners has a
record of seeking "controversial" bargains at
low prices. He warns that it will not appeal to
investors who can't stand volatility in the short run
and suggests being ready to wait 10 years for the
results to show up.
In 2008
it lost about 50 percent, ranking near the bottom of
funds like it. This year it had a 6.6 percent gain and
was in the top 5 percent until August. It recently had
been down about 5 percent for 2011.
Another
bargain hunter is the Sequoia fund. Some funds that
search for value will only buy at deep discounts, but
this one will pay more for stocks the managers consider
outstanding. Kinnel considers Sequoia "a
classic" for bargain picking. He says "the
managers have really proven over time that they're just
very good evaluators of businesses." In 2008 it
lost 27 percent but ranked in the top 3 percent of
peers. This year, it recently had gained about 3 percent
and ranked in the top 1 percent.
For
people seeking a bargain hunter that searches globally,
Kinnel suggests Artisan Global Value Investor, run by
David Samra and Dan O'Keefe. "They are very good
opportunistic investors," said Kinnel.
In 2008,
it lost 29 percent, but in a sign of the times ranked in
the top 6 percent of funds picking stocks worldwide.
This year, it recently had lost about 6 percent but
ranked in the top 26 percent of its category. In tough
times, a fund can lose some of your money and still
stand out from the crowd.
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