Hurricane investing: You don’t need a weathervane …

August 26, 2011

Maybe you’ve already got your lawn furniture stashed in the garage, your water jugs filled and your important papers protected. But have you gotten your investment portfolio ready for Hurricane Irene, currently threatening all the East Coast hot spots?

Three main themes emerge: Selling into the storm; ditching shares facing the most risks and buying into the rebuilding effort. Here are some considerations.

Prepping for the pre-storm selloff
Recent weeks have seen outsized stock market volatility characterized by one thing: an especially wild last hour of trading. On many days, traders have been selling off shares between 3 p.m. and 4 p.m. because they don’t want to leave themselves exposed to overnight risks that could hit Asian and European markets while they are sleeping.

Well, today, people who stay fully invested will have their assets hanging out there for the weekend. They may wake up on Saturday or Sunday morning to find Irene battering the very companies they hold, or even the New York Stock Exchange. Does that mean you should join them, or perhaps start selling at 2 p.m. to get a jump on the action?  Who knows? Maybe after weeks of decline it will be a bargain-hunting opportunity.

There is one reason to sell shares and take your money off the table, suggests Sheryl Garrett, a Kansas City, hourly financial planner. If you’re a retiree living on withdrawals and you’ve let your cash levels get dangerously low — say to about three months of living expenses. “Maybe then you do want to replenish your cash, so that if things do turn south and stay there for a while you’re not finding yourself in a financial calamity because of natural disaster.”

Should you sell the risky?
Over at InvestorPlace, editor Jeff Reeves is telling people to sell home insurance companies like Allstate or Travelers, both of which stand to face big claims if Irene batters neighborhoods they cover. According to a report from Morgan Stanley quoted in the Wall Street Journal, Chubb Corp is actually the company that does the most business in the Northeast U.S.

But you’re not going to be selling at top dollar, nor will you be the first person to figure this out.  Those firms all lost ground on Thursday. “Given that the hurricane gave a long warning, I wouldn’t see any investment opportunities per se,” says Garrett. “We do have a relatively efficient market.” As a matter of fact, some analysts believe Irene will give property casualty insurers all the excuse they need to raise rates, whether it hits them or not.

Another sector that could be at risk from the hurricane is the energy sector, where companies have been bracing for hits to plants and pipelines. But energy firms tend to do well after disasters; demand doesn’t go down and prices can rise.

Bet on rebuilding?
Gold has been built up like crazy, but other commodities — like wood and drywall — could do well if big damage (and President Obama’s forthcoming infrastructure push?) increase demand.

Reeves suggests Home Depot as a one-stop stock for all the tools and supplies that people may need to repair their properties. Don’t think of it as disaster profiteering, he says. Consider it “investing in the rebuilding of the East Coast.”

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Will look forward to next post of yours

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