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Forget the Midwest – Drought in the Markets Is Crushing the Investors

Thankfully, this is no natural disaster and there are man-made solutions

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We Are Not at the Mercy of Nature

Depressed? Well, thankfully I’m not going to take a page out of Grapes of Wrath and leave you with a dismal scene to wrap up this drought tale. Instead, I want to look to the future — and a hopeful future at that.

Droughts are so emotionally draining because it seems like there’s nothing we can do but wait. Only Mother Nature can send the rains, when the time is right.

But that’s patently untrue in the 21st century. Yes, a drought is a hardship that hampers productivity. But it’s no longer a catastrophe.

In a drought, smart water use can mitigate lower rainfalls. In a Wall Street drought, a focus on capital preservation instead of stock-picking and chasing growth can be equally important.

Irrigation can help bolster crop yields in a drought as farmers tap into some of the terrestrial water resources while waiting for rain. Investors waiting for the return of a raging bull market in stocks are not without options, as many low-risk dividend stocks or bond investments offer a trickle of decent yields.

As volatile crop prices threaten profits, shrewd businesses find ways to hedge their costs. Smart investors also can learn how to hedge their bets or target short-term investments to supplement their core strategy.

And most importantly, as investors, we must remember that a drought does not mean crops can’t grow. Some harvests might be a bit smaller than we are used to, and we can’t get surprised when some seeds scorch in the summer sun or a few plants wither and die. But we can’t lose hope or stop planting altogether.

After all, we have to eat.

The markets are up 11% year-to-date in 2012 and many are afraid that this brief period of plenty will be replaced by another downturn this fall. After all, the “fiscal cliff” looms large, Europe still is a wreck and Q2 reports have some investors worried about slowing momentum for corporate earnings.

Sounds a lot like the Reuters report I read today about a moderate rainfall helping farmers a little … but not enough to save many of the crops that were already lost, and not enough to ensure the drought is over.

We could very well see another leg down in the months ahead, and frankly, I think it’s likely we will see a rocky market until Thanksgiving.

But that doesn’t mean we are going to starve. There are tools available for investors to keep growing their money even in this dry spell.

Through my in-laws in Ohio and my college days in Pennsylvania, I had the pleasure to meet some real-life American farmers. They are not like the fair-weather Realtors who hopped into a booming housing market in only to wash out when times got tough. They are not like Wall Street hucksters who had hot hands during the go-go market of 2004 but can’t even break even now that the market is more challenging. These are folks who work hard every day, regardless of the weather or crop prices. Sometimes they have good years and sometimes they have bad ones — but that doesn’t mean they stop farming.

The current stock market is painfully dry. But if you’re an investor who’s serious about growing a portfolio, you won’t stop working the soil.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP.

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