In Search of the Perfect Investment

The music will stop. And stock prices will crash.

I don’t know when or why. Or even how much.

I only know it will happen.

Here’s a chart showing the 2008 drop.

Notice how it ultimately came back — thought it took four and a  quarter years before it reached 2000’s lofty levels. But notice how lately it’s been almost vertical.

I started to write this early yesterday but had some urgent personal stuff, so I couldn’t post it.

And yesterday, Nasdaq dropped before conveniently before bouncing back. That cut my losses on the day by more than half. Here are the last two days:

There are several strategies:

+ Do nothing. You can’t time it. The economy is doing well. Other than the coronavirus, there are no economic crises. And ultimately the market comes back — see the top chart. We’ve made so much money in recent months, giving back a little is not going to kill us.

+ You can put in stop loss orders. 15% below today’s prices will protect you.  The level you choose needs to be large enough to accommodate short-term panic. 15% works for me. I’ve done studies that show 15% works and will save you long-term. You need to check if the reason for a stock’s decline is because its business suddenly s*cks or it’s just negative total market sentiment.

+ Often in crashes, the market kills old favorites and finds new stuff. We’re lucky. The old favorites — like technology — are still favorites. The economics of technology — especially infinite scaleability and ultra-low marginal cost –still work — perhaps even more so, given that so many other areas are being hit by China problems — e.g. energy.

I continue to read Galbraith, a favorite author of mine from way back. I highlighted his book in my previous post:

I don’t believe that today we fit his definition of financial euphoria. That’s good. Here are his words:

The more obvious features of the speculative episode are manifestly clear to anyone open to understanding. Some artifact or some development, seemingly new and desirable-tulips in Holland, gold in Louisiana, real estate in Florida, the superb economic designs of Ronald Reagan-captures the financial mind or perhaps, more accurately, what so passes. The price of the object of speculation goes up. Securities, land, objets d’art, and other property, when bought today, are worth more tomorrow. This increase and the prospect attract new buyers; the new buyers assure a further increase. Yet more are attracted; yet more buy; the increase continues. The speculation building on itself provides its own momentum.

Those involved with the speculation are experiencing an increase in wealth-getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved.

To summarize: The euphoric episode is protected and sustained by the will of those who are involved, in order to justify the circumstances that are making them rich. And it is equally protected by the will to ignore, exorcise, or condemn those who express doubts.

He really is a delightful writer. Buy yourself a copy from Amazon. I need you to keep Amazon’s stock price up. It’s my second largest position.

The Democrats are depressing

I actually stayed awake for the entire debate. Bloomberg got hammered and did not respond well. He looked hesitant and not presidential. Maybe his ads will save him in coming months? Maybe he’ll learn how to respond better to “stop and frisk criticism” and the problems he’s had with women which required payments and non-disclosure agreements.

Bernie and Elizabeth Warren are nuts. They plan to give away so much free stuff they’ll dislocate the economy — put a lot of people out of work.

None of the Democrats on the debate stage has started a business — except for Bloomberg — so they have real trouble figuring the specifics and costs of what they want to do. The more moderate ones — like Mayor Peter and Amy Klobuchar — don’t have the “charisma” that Trump has in spades.

My dear friend, Dan Good, summed up Trump:

Trump has a clear but simple mind. Not brilliant, but smart enough. Amazing recall too and superhuman energy. It’s what propelled him in the real estate business. Further, he is open to trying anything and almost anybody. Minimal investigation and dominated by instincts. It’s why he has made so many mistakes in business — Airlines, schools, casinos, etc.,  and with selecting people. I’m sure the sales pitch sounded good and as long as he was mostly lending his name and not cold hard cash, he figured what the hell. Same now in politics and with people, including Bolton. The good thing is that he takes quick action when someone doesn’t work out. Fortunately his business instincts led him to reduce taxes, regulations, rebuild the military, etc. For us, obvious and easy decisions. Even demands on NATO were easy for him. Pay up, guys!

Complicated issues are difficult for him. The Middle East, for example. Korea too. He sees a mess and wants to get out. If it weren’t for China’s obvious threat to trade and national security, he probably wouldn’t have been so bold. Glad he was, however. More nuanced and on difficult issues he punts or delegates.

I keep eyeing new stocks. I like finding fun stuff like ENPH, SEDG and GNRC. A friend recommended two retail mall stocks — PEI and MAC. Check out their massive dividends. Both are up today.

The theory is that everything is worth something — especially if it has income, as these two do. When they’re real cheap, they may be worth buying.

Markets just opened this morning and we’re giving back more gains. Nasdaq is down 1.22%. The Dow is down 0.78%.

Good day to play tennis, practice that down-the-line backhand. The key in tennis is to hit the ball early. Tennis is a running game. You need to play it every day to fine-hone your skills.

I can’t afford to miss a day without exercise. I start to feel as though my entire body is freezing up.

I’ll watch this market today. I may post something later. Meantime stay cool. Do not panic. — Harry Newton