What to do in a Market Meltdown?

In my 30 year investment career, I have seen several meltdowns; some rapid crashes like the ones in 1987 and 2001 (following the 9/11 attack) and slow torturous declines like in the late seventies due to inflation and in the early nineties caused by the last real estate collapse in North America. Some of these were local problems in America or Asia (1998 currency crisis) while others were global. In several of these, the problems were likened to the 1929 crash followed by a depression. The most ironical example of this was a book written by Prof Ravi Batra, "the coming depression of 1990". The wise Prof followed his own medicine and sold his NY condo for $200K in 1990 and moved to a rental. His Condo recently sold for over $2.5 Million. Similar calls are being made today.

I too was shaken out of some of my positions during some of these; like the Multi Unit investment real estate I held, had to be liquidated to balance my debt equity ratio back in 1994 and disposed of Nortel at around $48 in 1998 before it went up to over $120 in 2000. Some of these turned out to be a fortuitously good decision like Nortel but majority of selling after a market has collapsed, was simply a bad idea.

My lesson was simply that given time assets you hold will come back and go higher as long as they can avoid bankruptcy.

So, today I go through my portfolios again and again and ask the question whether the holdings can last the down cycle. If yes, I hold. If doubtful I sell and hold on to cash until there is good reason to buy. There is no scarcity of things to buy, like Warren Buffet has declared by spending his hard cash into the likes of General Electric, Goldman Sachs and Constellation Energy. First two of these are also on my buy list and so are Caterpillar, 3M, Deere, Exxon, to name just a few. But the real opportunity lies in income producing preferred shares and bonds as there is considerable market inefficiency in this group due to credit concerns. These can yield as high as 8% while government bonds offer less than 4%.