In Search of the Perfect Investment

In yesterday morning’s blog, I agonized about why the market suddenly turned in October. Dah! Here’s the chart.

SPX is the S&P500.

The Fed does a great job of tanking the stockmarket. It’s had lots of practice.

Yesterday the Fed raised interest rates and said it might raise rates twice in 2019. Yuch.

Joel Ross of The Ross Rant, wrote this morning:

The Fed did as expected with the raise, and is still likely to skip the March increase, but Powell left us very unclear. He seems unclear. The raise seemed OK since it was fully expected by the market, until the press conference when things seemed to get more unclear and uncertain. It seems more likely the Fed might raise too much in 2019, and that triggered the giant reversal of the market. What really then seemed to upset the market more was his statement that he saw no problem continuing to unwind $50 billion a month of QE. Many in the market believe this unwind is also tightening of markets at a time when more liquidity would be very desirable. A lot of people thought they might cut back on the unwind.

Several learned hedge fund managers have gone public saying the markets will continue to tank. They’re probably short and want it to tank. Cynicism is my middle name.

Several learned friends have suggested this is the bottom. There’s always a bottom.

Frankly, I’m dubious. To my brain, the Fed is in control and it really doesn’t care about the stockmarket. It cases about controlling inflation — which apparently it’s found. God knows where. Oil and gas prices are way down. Housing prices are way down. In my pocket I feel deflation, not inflation.

You’ve heard all my rules — about stop losses, not owning cockroach stocks like Facebook.

You know I have a low threshold for pain. My portfolio was up hugely a few months ago. Now it’s up — but not hugely. As it erodes by the day, I tend to panic and bail — that means lately from stocks I’m actually up (on what I paid).

You want optimism (and sanity)? CNBC MakeIt ran this piece three days ago.

THE BEGINNER’s GUIDE TO INVESTING
Warren Buffett suggests you read this 19th century poem when the market is tanking

The stock market has had a volatile year, and it’s not over yet: The Dow Jones Industrial Average lost more than 520 points on Monday and the S&P 500 fell 2.1 percent. Both are in correction and on pace for their worst December performance since the Great Depression in 1931.

But for the average person, shifts in the market, even ones as dramatic as the ones we’ve seen this year, shouldn’t be cause for panic. During times of volatility, seasoned investor Warren Buffett says it’s best to stay calm and stick to the basics, meaning, buy-and-hold for the long term.

So, during downturns, “heed these lines” from the classic 19th century Rudyard Kipling poem “If—” which help illustrate this lesson, Buffett wrote in his 2017 Berkshire Hathaway shareholder letter:

If you can keep your head when all about you are losing theirs …
If you can wait and not be tired by waiting …
If you can think – and not make thoughts your aim …
If you can trust yourself when all men doubt you …
Yours is the Earth and everything that’s in it.

Market downturns are inevitable, Buffett pointed out, using his own company as an example: “Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips.”

He went on to cite each of the steep share-price drops, including the most recent one from September 2008 to March 2009, when Berkshire shares plummeted 50.7 percent.

Major declines have happened before and are going to happen again, he says: “No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow.”

Rather than watch the market closely and panic, keep a level head. Market downturns “offer extraordinary opportunities to those who are not handicapped by debt,” he says, which brings up another important investing lesson: Never borrow money to buy stocks.

“There is simply no telling how far stocks can fall in a short period,” writes Buffett. “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

Hence, I’m holding cash. I still have stocks. And I’m playing tennis this evening.

More favorite Christmas cartoons

Oih veh. 

Her 18-year old daughter tells her mum she has missed her period for two months.

Very worried, the mother goes to the local pharmacy and buys a pregnancy test kit. The test confirms her daughter is pregnant.

Shouting and crying, the mother says, “Who was the selfish bastard that did this to you? I demand to know!”

Without answering, the girl picks up the phone and makes a call. Half an hour later, a Bentley stops in front of their house. A middle-aged and very distinguished man steps out of the car and enters the house.

He sits in the lounge with the father and mother, and tells them, “Your daughter has informed me of the problem. I can’t marry her because of my personal family situation but I’ll take charge. I will pay all costs and provide for your daughter for the rest of her life”

He continues, “I will bequeath two retail furniture stores, a deli, a chateau in France and a $10 million bank account.”

“However, if there is a miscarriage I’m not sure what to do. What would you suggest?”

All silent at this point, the mother placed a hand firmly on the man’s shoulder and told him, “You’ll try again.”

Harry Newton who this Saturday is taking Sophie to Dairy Queen (now called DQ) for lunch and then to Mary Poppins Returns. Should be a great day.