Preservation is always my main concern. As the market rises, there is pressure on me (and rightfully so) to put money to work. Why? Because, despite my long-term bearish view, the market wants to go up. My personal view is irrelevant. My recent attempts to be proactive on the long side have, candidly, resulted in tail-chasing. This is unusual for me and it will not last.<\/p>\n
I shorted SLV a couple of times recently but covered before the big drop. Dumb.<\/p>\n
We have had some very successful trades- names with low valuations and great earnings momentum. There is less liquidity to support the kinds of moves these stocks deserve, so their returns have been more muted. Most liquidity is going to fewer and fewer names (like Apple and Google, neither of which I am going to chase). My approach is to attempt a few trades with extremely tight stops. Every so often we’ll catch it right and the trade will stick around for some real gains. Recent examples: JDSU, CBS.<\/p>\n
I see three major issues affecting the markets:<\/p>\n
– Earnings have been good generally. Guidance and visibility (as stated by companies) are improving as well. That’s good, though I view it nervously. I think that corporate execs see storm clouds further on the horizon.
\n– QE2 is scheduled to end soon. The anticipation of this, without an announced QE3 behind it, is a major reason for the recent selloff.<\/p>\n
– I believe the notion of a double-dip recession will be on our doorstep for a long time. With a QE3 cycle, we may postpone going into one.<\/p>\n
Here is the most important point: Corporations have been enormous beneficiaries during the last generation of unsustainable government spending. On the other end of that seesaw we have very high debt and unemployment. In order to reverse unemployment and balance budgets, corporate profits must suffer by definition. Implementing QE3 would help now but will only worsen the inevitable price down the road.<\/p>\n
I cannot say how much of this predicament is factored into stock prices. Some of it is, I’m sure. The global growth story has been and continues to be powerful- this can carry stocks for some time. Wall Street will extract every ounce of juice from the lemon for as long as it can and pump things up like they did with mortgages- that is, until the music stops.<\/p>\n
Our perversion of true capitalism has led to a house of cards, and we will pay a price. The proof is in the above website.<\/p>\n
Now, suppose I’m wrong. Suppose the market can continue up indefinitely despite our debt burden. Then weeks like this past one would represent buying opportunities. This is the tough part. Do we raise stock exposure here, take advantage of lower prices? Was this past week the 2011 version of the Flash Crash? If the last two years are any indication, then we should be increasing our stock and commodity exposure off of this recent drop. I am not yet prepared to do that, as I remain cautious.<\/p>\n
So, Harry, let me reiterate: I do get the big picture. I will continue to evaluate the proper risk\/reward on a daily basis. I maintain a separate screen for all your investments and track them incessantly.<\/p>\n
I also note your preference for dividends. I have moved in that direction. Be very careful with the double-digit yields.<\/p>\n
Why is Paul making his own life so complicated? What’s done well for us — check out the column on the right — are:<\/p>\n
+ Gold. But not miners. I can’t predict them.<\/p>\n
+ High yield stocks. They’re not growth stocks. They don’t grow. But the dividends they pay are a great return.<\/p>\n
+ Good industrial companies with strong overseas exposure, like KO, DHR, CAT and IBM.<\/p>\n
+ A couple of broad ETFs from solid countries like Australia (EWA) and Switzerland (SWZ).<\/p>\n
+ Tight stops. Kick quickly out of stocks that turn squirrely, e.g. SLV, which actually might be worth buying down here.<\/p>\n
+ Staying away from “glamor” tech stocks that are doing stupid things, like Microsoft buying Skype for $8.5 billion — when Slype is losing money and no one — not one of its many owners — have ever figured out how to make a profit with that company.<\/p>\n
Going for capital preservation.<\/strong><\/span> A reader said this little piece sums up my philosophy to investing. See what you think:<\/p>\n Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog<\/a> and on his personal Web site, BehaviorGap.com<\/a>.<\/em><\/p>\n I\u2019m more convinced than ever that Mark Twain was correct when he decided that he was more interested in the return of<\/em> his money than the return on<\/em> his money.<\/p>\n A couple of weeks ago, we discussed<\/a> how often people in their 60s and 70s say that their primary residence of over 30 years was their best investment. This belief exists despite the fact that home values barely kept pace with inflation<\/a>. How can this be, given that during the same time period average annual returns in various stock market indexes ranged from 8 to 13 percent?<\/a><\/p>\n Because for most people, it was the only investment that didn\u2019t lose money!<\/p>\n While the same outcome may not apply to housing in recent years, the principle still applies to investing in general. Most of us are chasing the highest return, because that\u2019s what investing is all about, right?<\/p>\n But the experience of many people has been that the well-intentioned search for the best investment actually cost them money. They bought at the peak and sold at the bottom, and their overall returns ended up being meager. I suspect lots of these people would gladly trade their actual experience over the last decade or more with simply having their money returned to them.<\/p>\n So, what if the key to investment success is to start by making sure that you don\u2019t lose money? Could it be that accepting a lower rate of return might result in having more money than continuing the wild goose chase of this magical 10 percent we hear that the stock market delivers over time?<\/p>\n Part of the problem is that we focus on the wrong thing, like finding the very best investment or beating a particular stock market benchmark. Both are a wild goose chase. Having the money for a dignified retirement, however, is not. By setting real financial goals, we can quit chasing investment performance and focus instead on creating a plan for the future that makes sense.<\/p>\n Once a plan is in place, it may very well be that the best thing we can do with our investments is to simply not lose money and take the time and energy we were spending in the chase and focus on those things that we have more control over. Things like finding creative ways to earn or save more, or just enjoying the one life we have to live.<\/p>\n How to get the battery of your Android phone (e.g. Verizon Thunderbolt)\u00a0 to last longer:<\/strong><\/span><\/p>\n 1. Download Advanced Task Manager\u00a0 from the Marketplace. The app will show you which apps which are running in the background. Switch them all off.<\/p>\n 2. Turn off GPS location services.<\/p>\n 3. Buy an a bigger battery, or an external battery pack. Verizon sells an extended battery. Adds a hefty power boost.\u00a0 Costs $49.99<\/p>\n If your WiFi is acting slow:<\/strong> Download WiFi Analyzer from the Android Markeplace and move your WiFi signal to a different, less congested frequency. Get it off channel 1.<\/span> The Arab Spring updated.<\/strong><\/span> I attended a two-hour briefing last night. I learned:<\/p>\n + None of our foreign policy “experts” have any idea what the heck is going on, nor what the outcome will be. All are still amazed that Mubarak and his family are in jail. Mubarak was our big friend.<\/p>\n + Many “experts’ counseled Obama against the Osama raid, which got him. Obama made the right call.<\/p>\n + Europe, especially Italy, is reeling from the fleeing hordes escaping Libya to Lamedusa, an Italian island close to Tunisia.<\/p>\n + Algeria and Saudi Arabia could blow up.<\/p>\n + Bahrain could still blow up. We could lose our naval base there. The Bahraini royal family is seriously screwing the Shiite majority.<\/p>\n + Iran will develop a bomb and become an even bigger pain in the Middle East’s butt. We probably can’t stop it.<\/p>\n + Many countries are now looking to develop their own bomb. The argument goes “they wouldn’t be bombing us if we had a bomb.” In other words, France, Italy, England, the U.S. etc. wouldn’t be bombing the U.S. if Libya had a bomb. It once almost had one.<\/p>\n + Tunisia and Egypt have the best shot at some sort of representative government. Just don’t call it democratic, because it won’t be.<\/p>\n + Pakistan is the most dangerous place on earth. I remember when my friends use to make clothes\u00a0 there. No more. Now it’s China with a nice, safe police state.<\/p>\n + China may be the biggest beneficiary. While everyone agonizes about the politics — espcially the bad guys — China simply goes in and does deals, with everyone.<\/p>\n + Some of these countries may actually break up into separate countries. Sudan is the first. Libya may be next. Then Yemen and … Saudi Arabia.<\/p>\n + The only form of allowed political dissent in the Middle East is extreme Islamism, e.g. the Muslim Brotherhood. The growth (and threat) of violent Islamism is a great marketing tool for squeezing aid money out of the U.S. Egypt played that card brilliantly.<\/p>\n + Everyone and their uncle is disgusted at the $3 trillion which the wars in Afghanistan and Iraq have cost us so far. Some people are hopeful Osama’s death might speed up our withdrawal.<\/p>\n + There’s money to be made investing in all these newly unstable countries — but not for you and I. Far too complicated.<\/p>\n The big message I come away with is that the Law of Unintended Consequences <\/strong>is in full force. Libya gets bombed to save the people. The people flee to Europe. But Europe doesn’t want them.\u00a0 We help Libya. Now everyone wants to go nuclear. And on and on.<\/p>\n
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