When a particular "boom" goes "bust", what should investors do with their related exchange traded funds (ETFs)?
Gary Gordon for ETF Expert takes us back to 2000: the dot-com bulls were running rampant, convinced that the stock prices for those companies could do nothing but soar. In more recent years, the same craze spread through the real estate markets: the world is getting more crowded, there are fewer places to build and it can only send prices higher.
We all know very well by now how that turned out. But Gordon says that this isn’t necessarily to suggest that the newest booming sector – commodities – is primed for a fall. But he does stress that investors should recognize the psychology of fear and greed.
It’s a fact: booms go bust. Therefore, investors need to have a plan to sell.
Some resource ETFs are particularly attractive now, to be sure. Food is scarce. Water is scarce. Oil seems like it can’t be stopped. Naturally, investors will be taking a look at such funds as S&P Metals and Mining (XME) or the PowerShares Water Resources Fund (PHO).
It’s okay to get in those areas that are moving and above their trendlines. What’s not okay is hanging on as it falls below that line or 8% off its high and hoping against hope that things will turn around.
Now that consumer spending is at a stand still and real estate investment trusts are unattractive, what do savvy investors do? They bargain hunt! There are values to be had if you look for them. For instance, the Vanguard REIT Index (VNQ) is above its long-term trendline and has outperformed the broader market for 2008. The Retail HOLDRs (RTH) has followed suit, sitting above its trendline.
For full disclosure, Tom Lydon’s clients own shares of RTH.