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"Spend each day trying to be a little wiser than you were when you woke up." — Charlie Munger

Last week, I analyzed relative strength performance during the 2000 to 2002 and the 2007 to 2009 selloff and saw out of the group that gold was the only one in the group with positive returns.

Today, I analyze the nine main sector groups during the same time to determine if they could be safe haven candidates for when the next recession or bear market comes into play.

For those unfamiliar with sectors, imagine the U.S. market as a large pizza with nine various sized slices, representing the main groups of businesses in our economy. The important point, many believe that money goes from one sector to another depending where we are in economic cycles.

So, let’s analyze performance during the 2000 to 2002 and the 2007 to 2009 selloff, including the market ($SPX-green area), and sectors using their most popular exchange traded funds: consumer staples (XLP-gray line), health care (XLV-red line), basic materials (XLB-orange line), financials (XLF-purple line), consumer discretionary (XLY-pink line), energy (XLE-black line), industrials (XLI-green line), utilities (XLU-brown line), and technology (XLK-gold line.)

Chart - 2000-2002 Sector Analysis

During the 2000 to 2002 selling, the market ($SPX-green shaded area) sold off 49.15%. While some sectors had positive returns in 2000, none in this group had positive returns in October 2002 when the market bottomed.

The only one even close was consumer staples (XLP-gray line), with a negative .97% return. The worst sector return was technology (XLK-gold line), losing 81.90%. Those investing in XLK at the market top needed a 400%-plus return to get back to break even. Imagine the damage to ones portfolio for those overweight technology.

During the 2007-2009 selling, the market ($SPX-green shaded area) was down 56.70%. While some sectors had positive returns in 2000, zero had positive returns in March 2009 when the market bottomed.

Chart - 2007-2009 Sector Analysis

An investor favorite, consumer staples (XLP-gray line), had a 29.42% loss. The worst sector return was financials (XLF-purple line), losing 81.45%. Those investing in XLF at the market top needed a 400%-plus return to get back to break even. Imagine the damage to ones portfolio for those overweight financials.

During both time periods, all sectors in this group pummeled. This is a prime example that diversification works until it doesn’t. Remember, past results do not guarantee future results, so don’t just jump into consumer staples without the proper buy signals in place. I will be covering these signals in later writings.

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This performance data is extremely interesting, but the more important question is what are you planning to do with it? Here's what you should think about:

First, if you own sector funds, do you have their performance returns during these selling periods?

Second, if not, simply insert their symbols into a performance chart to see their returns.

Third, if you are not tracking your sector holdings previous performance, then why?

If you have a managed account, you should already have this sector performance data. If not, simply request it. Then, ask for their sector gameplan for when the next recession begins.

Profitable traders/investors make money with what they own and when they own it. If you want to learn more about the many tools and systems to better manage your holdings including how to calculate performance data, email me about my upcoming online training starting in 2020.

As we saw last week, the market continues to trade near all-time highs and currently is nowhere near a formal sell signal. No one knows when the next large-scale selling begins or what starts it. There is no better time than now to develop or fine tune your capital preservation plan and be proactive for when it happens.

What’s next? I analyze your submitted highly popular bond funds you were sold as a hedge for when equity funds hit the skids. The goal; to determine which securities may go up when the market goes down. Once we have a list, I will then explain what to look for before entering into these possible safe havens.

Continue to send me your safe haven candidates and I will analyze them and see if they qualify. If so, I will include them in a future column. I also plan to write on my candidates that definitely qualify as safe havens.

For many, this may be your first opportunity to make money when previously your portfolio tumbled. Very simply, it is up to you if you want to take the bull by the horns and learn how to not have that unnecessary, getting kicked in the gut feeling when the next bear market begins.

Plan your work, work your plan, and share your harvest!

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