FOCUS
36
FORTUNE.COM // JANUARY 2020
BU Y ING ‘ BE ARS ’
IN A BULL MARKET
INVEST
NEW HIGHS IN THE STOCK MARKETS are great for those who
already own stocks. But there is a downside when
stocks seemingly do nothing but rise. Any investor who’s been
holding cash, waiting for lower prices and a better entry point, has
had to keep waiting. And those deploying new savings into the
markets have had to do so at higher and higher prices.
Those rising prices are also a catch-22 for long-term inves-
tors, because pricey markets today make impressive future gains
Many stocks that are affordably priced today are cheap for
a reason—because economic trends have left them behind.
Here’s why you may want to buy them anyway. By Ben Carlson
less likely. The S&P 500 currently trades at
about 30 times its average inflation-adjusted
earnings over the past 10 years (the so-called
CAPE ratio). Historically, levels anywhere
near that high have almost always preceded
periods of disappointing returns.
That’s why many investors are more com-
fortable buying shares when there’s blood
in the streets. And the good news for those
investors is that there will always be a bear
market somewhere, even when the broad
market is killing it. Three asset classes that
have been left behind during this bull run
stand out in particular right now in the eyes
of bargain hunters:
Energy stocks Oil prices topped $150 a
barrel in June 2008. Since then, new produc-
tion unleashed by the fracking revolution,
combined with low inflation, has helped drive
oil prices down by two-thirds—while ham-
mering energy-company profits. Energy has
been by far the worst-performing
sector of the S&P 500 since mid-
2008, and it’s not even close: The
Energy Select Sector SPDR ETF
(XLE) has fallen more than 13%,
versus a gain of more than 200%
for the S&P 500. One consolation
prize is high dividends: XLE, for
example, currently yields 3.8%,
more than twice what the broader
market yields.
Precious metals and mining
stocks These commodity-producer
stocks often exhibit wild volatil-
ity because they’re unusually
sensitive to economic growth and
fluctuating supply and demand
for the commodities themselves.
Vanguard Global Capital Cycles
(VGPMX), a mutual fund that’s a
good proxy for the metals markets
and related commodities, has done
worse than just trail the market
during this cycle: Over the past
10 years, the fund is down nearly
50%. (Again, relatively modest
global growth is a culprit.) Inves-
tors often seek metals and mining
stocks because they have a low
correlation to the broader market,
ILLUSTRATION BY CHRIS GASH
