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I'm going to share some advice I think you'll find
valuable.
You see, after one of the most brutal bear markets in recent
history... a bear market where stocks fell, bonds fell, oil
fell, housing fell, Bear Stearns collapsed and Lehman
Brothers went under... every single one of the 21 holdings
in my High-Yield Investing portfolios is showing a
positive return. Some have gains as high as +50.3%.
I want to share with you how I did it.
Just to clear something up right away, I'm not smarter than
the market.
But I do have some techniques I've used to guide my
portfolios through this bear market, and I know they can
work for you as well:
Tip #1: I'm Not Afraid to Take a Loss
Like everyone, I find it tough to admit I'm wrong on a pick.
But I find it even tougher to continue watching while a holding
falls in value.
That's why I'm not afraid to take a loss. In the bear
market I closed out several positions that locked-in losses,
and I'm sure glad I did. If I held on to every stock I had
at the start of the market's fall, I wouldn't be showing
near the returns I'm enjoying now.
For example, in September 2008 I sold shares of the Morgan
Stanley Eastern Europe Fund (NYSE: RNE) even though it
assured a loss of roughly -15%. But I'm happy I did. The
fund went on to fall from about $20 per share when I sold,
all the way to a low of $5.81 in March 2009.
It's almost cliche by now, but knowing when to sell a stock
is just as important as knowing when to buy. You can't be
scared to admit you were wrong and move on to another
opportunity.
Tip #2: I Limit Exposure to Common Stocks
Common stocks in general just don't yield much. The S&P 500
has a yield of only 2.6%. But if you think that's a negative for income
investors, think again. Because common stocks yield so
little is a key reason my portfolios are showing green.
 When I can't find the income I desire from common stocks,
I look elsewhere. These "other" places are
exchange-traded bonds, preferred stocks, master limited
partnerships, and income deposit securities. The advantage is
that in addition to higher yields, these lesser-known
securities are also less volatile than common stocks and
hold up better in down markets -- even outperforming the
broader averages in bull markets.
For example, as you can see from my chart, the Alerian MLP
Index -- an index of master limited partnerships -- is up
over +30% year-to-date, more than doubling the performance
of the S&P 500.
Tip #3: I Buy When Yields are High
I didn't know when the market was going to bottom, so how
come I bought 12 of my current holdings in the months of
February, March and April (the S&P 500 hit its low on March
6th)?
It wasn't that I had inside information. I simply couldn't
help but add to my portfolio at the time -- with everything
going down, the yields available were through the roof and
well above historical norms.
For instance, I picked up the exchange-traded bonds of one
company in early February after they dropped much too far
for an investment-grade security. At the time, they were
yielding 10.7%. Today that yield has come down to 8.4% since
the bond price has rebounded +26.7%.
Incidentally, I also alerted my readers I was so convinced
this bond was undervalued that I was adding it to my
personal portfolio. I've since profited handsomely alongside
my subscribers.
When I added picks like this, I didn't know if we were at
bottom or not -- I simply knew the payments were safe and
too high to ignore. This is the same strategy my colleague
Nathan Slaughter employed for his portfolios in his ETF Authority
newsletter, and he's enjoyed similar results.
Even in a Bull Market These Strategies Work
Just because the bulk of the bear market appears to be over
doesn't mean I'm changing my investing methods. The
truth is that while these techniques have been great in a
bear market, they apply to any time.
So if we're at the start of the next great bull market, I'm
ready for my portfolio to continue higher. But if we have
another leg down, I know I can come out the other side in
good shape. I've already got the record to prove it.
Good Investing!
Carla Pasternak's Dividend Opportunities
P.S. -- If you'd like to join my
High-Yield Investing team and see my current
holdings, I invite you to try a risk-free subscription. In
this month's issue, I take a peek at a mouth-watering
opportunity awaiting bond investors... which includes yields
of up to 11.9%.
And as always, remember that we offer a money-back guarantee
if you aren't completely satisfied with
High-Yield Investing.
*return data as of 08/10/09
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