How to Hedge Against a Bear Market

As my readers would know, I have been very bearish on the stock market over the last few months. I am surprised to see the S&P 500 rally above 2,100 since hitting the February-lows. Amid falling earnings, increasing growth concerns, and a slowdown in overall world economy, I find it hard to understand the recent rally in the stock market. That being said, my recommendations have still outperformed the market.

Since I am bearish on the market, I have only recommended a few stocks as long-term buys and instead I have focused on trading and shorting stocks. However, out of the stocks that I did recommend buying for the long-term, Barrick Gold (ABX) was one.
Although I missed out on Barrick Gold’s initial rally, I recommended the stock at about $12 and it has gone up about 60% since then.

Although gold prices have no direct correlation with the market, historically gold prices tend to move higher during a bear market. Thus, I think investors should accumulate precious metal stocks so as to hedge their portfolio against a bear market.

In addition, I have mentioned multiple times in the past that investors should allocate about 40% of their funds in shorting overvalued companies that can fall even in the most bearish of markets.

I am not the only one who is bearish on the market and recommends buying gold stocks. Billionaire investors Geroge Soros recently purchased $264 million worth of shares of Barrick Gold in the first quarter and also doubled his options bet against the market. Given Soros’ hedge fund holding of roughly $4.5 billion, the bet looks huge.

Barrick Gold is also my favorite pick as the company is on track to reduce its debt. Barrick Gold planned to reduce debt by $2 billion in 2016, and has slashed about $850 million year to date. The company is on track to reach its goal of $2 billion, and the stock still remains a good buy.

There also many other stocks investors can buy in this sector. Apart from Barrick Gold, my favorite picks in the precious metal sector are Yamana Gold (AUY), IAMGOLD (IAG), Silver Wheaton (SLW), Goldcorp (GG), and Pan America Silver (PAAS). Although all of these stocks are currently trading near their 52-week highs, I think investors should consider buying these stocks along with Barrick Gold to hedge against an impending and long overdue bear market.
Published on Jun 9, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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