edging your stake Cautious investors can find safety in stocks Russell Moldowan THE BOTTOM LINE DESPITE PERIODIC volatility in the stock mar- ket, such as the events of recent weeks, stocks have outperformed other types of investments. Stocks rise and fall according to economic and market influences and may not have a significant cor- relation with the overall! market. Consequently, it’s important to know that there are investment alternatives available to even the most conservative investor. A declining market need not erode your profits if you use investment strategies called hedges. These can protect your invest- ments from possible price declines, reduce risk or provide you with varying levels of protection. The following are two examples: @ Buy puts on stocks you own: When buying a put, you buy the right to'sell shares at a specified price by a certain date When you buy a put on a stock you already own, the put acts as insurance for the stock. If the stock goes down during the life of the put, you can sell that security at the pre-determined high- er price, thus “insuring” the invest- ment against the stock’s decline. Also, the put might be sold for its market value, which would tend to be higher in a falling market. & Restructure your portfolio: Another strategy is to adjust your holdings to include stocks of industry groups or sectors that are expected to perform best in that market environment. For example, companies that provide goods and services which are in constant demand — estab- lished oi} and gas companies, food Tax freedom day approaches THE, CANADIAN Taxpayers companies — are more tikely to remain stable ina declining market than companies that sell luxury items or expendable products, @ Other hedging strategies: Selling calls on stocks you own: reducing the term to maturity on bonds: buying convertible securi- ties; and diversifying into overseas investments. Your investment advisor should be able to help you explore these alternatives and point out the risks and benefits. Just as the aforementioned strategies help protect against loss, there are alternatives aimed at gen- erating profit in an uncertain mar- ket. These generally involve higher risk than those intended to protect your investments — selling short for example. When selling short, you want to take advantage of declines in stock prices by selling securities you do not own. You borrow the stocks from your brokerage firm, and sell them at current market prices. The difference between the higher price at which you sold the stock short and the lower price at which you bought it back, is your profit. However, if the stock rises, you lose money because you must buy the stock back ata higher price. Other potential profit-making strategies you may want to discuss with an investment advisor include buying puts on specific stocks and stock indexes, and selling stock index futures. Aggressive techniques such as selling short are not for everyone. Other approaches such as buying puts are suitable for cautious investors. 1 would like to point out that strategies that include options may only be transacted by an investmen advisor who is licensed to deat in options. These strategies can help you manage risk. The require advice to implement but can add greatly to a portfolio’s return. & The bottom line: As interest rates rise and equity markets underperform, your invest- ment advisor should be preparing to protect you and help you take advantage of the situation. Russell Moldowan is on invest- ment advisor in Vancouver. He advises on investment management and retirement planning. Call or write to him at (604) 661-7475, P.O. Box 10342, Pacific Centre, Vancouver, B.C., V7Y 1H6. NEWS photo Brad Ledwidge DR. BRIAN Floyd (ieft) recently opened an office in Delbrook Piaza and decorated it with the works of artist Robert Jones. 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