Beat back the bear with these safe bets

The bull is restless and investing in a bear market is scary. But there's no need to hide

By Anwar Ali

After nearly five years of record returns, has the bull lost its edge? Have we stirred the bear from its slumber? Don't panic, doctor, there are still some great ways to play the market even in these uncertain times.

RUNNING OF THE BULL
For a while it seemed like nothing could stop the market bull that burst out of the New Year's corral. A brief dip in February was quickly forgotten when, seven months later, on July 19, the S&P/TSX Composite Index roared to an all-time high of 14,625.76.

But the joy was short-lived. Less than a month later, investors were left to lick their wounds when the entire 13% year-to-date gain on the TSX benchmark index vanished. The stateside credit bug crept across the border and sent shivers down the spines of nervous investors. Materials stocks fell the most in 10 years. The soaring commodity prices and manic frenzy of merger and acquisition activity didn't seem to matter much at that point. And suddenly, "mortgage-backed securities" became a household term.

With three-digit swings each way for several days in August, investors were scrambling to find a tranquilizer gun to tame the hyperactive beast that ravaged people's portfolios.

Lately, the market has calmed down somewhat. The TSX Composite is back in positive territory for 2007.

BEAR SEASON
It's a little early to say whether the bear has awoken from its long hibernation. But it's not easy to blame investors who'd rather steer defensively instead of playing with this bull's volatile temperament. The usually tame August was certainly a wake-up call.

So where's a doctor to go for some market-type fun? Everyone seems to be heading to the safe haven of treasury bills (which haven't been so readily available lately). But that's not the only option for safe returns — not by a long shot.

Stick it out If you're feeling the impulse to play "sell and hide," then grab something and hold on tight. The sell-off in August was possibly only a correction, just like the one in February. Besides, you'd be kicking yourself if the naysayers were wrong.

On sale, for a limited time If you like to look at a glass as half full, market dips are actually opportunities to stuff that wad of cash under your mattress into a stock that's fallen but likely to bounce back. Look in the bargain bin for companies that are undervalued while counting on the market to eventually wise up. If you believe the market overreacts to news, whether it's good or bad, then this might be the right approach for you. Trouble is, different advisors have distinct methodologies to determine value. And none is more right than the next. So keep in mind that value is subjective.

Ol' faithful Following the herd of speculators might not be your thing. It could be a time to go back to blue chip stocks with solid management, strong cash flow and consistent earnings growth.

These stocks aren't going to move too much, so try to find ones that have high dividend yields or dividend growth. Why are dividend stocks good to have? Stock prices and yields have an inverse relationship. So when the price falls, your return ratio gets better. And when those dividends are reinvested at a lower price, you're getting more shares for your buck. Once the share price recovers, you're making even more than if the price hadn't dropped. A blessing in disguise, you could say.

What sectors are worth looking at? Think of staples you need no matter what shape the economy is in — like food and beverages, telecommunications and utilities

Healthy choices Your health is the most important thing you have, Grandma always said. Maybe you should ask her opinion on stocks, too. Just like Grandma's chicken noodle soup, the healthcare sector is another way to be comforted when your portfolio's feeling a little under the weather.

Bulk up on banks The only guarantees in life are death, taxes — and Canadian bank profits. Some market watchers believe that Canadian banks are immune to the US credit crunch because they don't have exposure to the subprime mortgage mess that's eating away at US lenders. Rest assured, that means you won't either.