No Panicking! January 23, 2008
Posted by Andy Robinson in : Market Research , add a commentNow is the time when normal investors get fleeced. Warren Buffet once said, “Be fearful when others are greedy and greedy only when others are fearful.” Unfortunately individual psychology tends to move along with the pack. When the stock market was skyrocketing in the 90’s, most investors didn’t have the willpower to trim tech positions and reallocate to bonds, cash and defensive equities. The same is true now. It takes willpower to not sell out of the stock market and to keeping adding new positions. The key to investing success is to have the right portfolio mix between different asset classes, which is determined by length of time until retirement and financial goals. I am young and completely in equities. Although this bear market is painful in the short term, I am confident that the stock market will soon find a bottom after a bit more volatility, and that the second half of the year will be marked by a strong rebound as soon as it becomes clear that the worst of the turmoil is behind us.
Investing for Income November 28, 2007
Posted by Andy Robinson in : Market Research , add a commentTraditionally one thinks of using bonds as an income source in retirement, but with yields on the 10 year Treasury note dipping under 4% recently and inflation still a strong concern, other options need to be found. One option that seemed great until six months ago is trading debt quality for higher yields. In an effort to beat treasury returns, financial institutions bundled together lower-quality mortgages and individuals bought high-yield bond funds. In this environment, we still need to shun low quality debt because it loses a lot of value in an economic downturn. I agree with this WSJ article that investors seeking income need to consider picking up value stocks. The recent pullback has given many companies, particularly financials, a much more attractive yield than treasuries. And over time, dividend-paying stocks offer protection against inflation because, as a company’s income rises, so generally does its dividend.
Keep your focus long-term November 8, 2007
Posted by Andy Robinson in : Educational , 1 comment so farThe article Don’t Be Fooled by Randomness reminded me that I, like many other investors, tend to start thinking too short-term with their investments. This is particularly true during volatile and exciting times. When it comes right down to it, the fact that the market is down 4% since I glibly proclaimed myself “all in” is meaningless to my long-term financial well-being. The best way to gain and preserve wealth is to find valuable companies and invest in them for a long time (forever if the fundamentals stay as good as when you first bought them). I will stay the course with my 100% allocation towards equities. This allocation is not suitable for those anywhere near retirement age, but I would recommend taking some profits on government bonds and reallocating towards a heavier equity exposure at the moment.
Economic Fundamentals Improving November 7, 2007
Posted by Andy Robinson in : News , add a commentAnother little piece of news that confirms my burgeoning optimism is the Labor Dept report on productivity and wage growth. It hasn’t moved the market this morning, but the surge in productivity (4.9% last quarter) is crucial to avoiding recession. Equally important is that labor costs have eased slightly, which will help calm inflationary fears and allow for more easing if necessary.
Commodities Rally Getting Tired November 6, 2007
Posted by Andy Robinson in : Market Research , 44commentsI think we’ll touch $100/ barrel oil, but simply because the traders are hyping that benchmark like it’s a foregone conclusion. Therefore money will chase crude until it reaches that mark then sell off steeply. But what does this mean for normal investors? Simply that now is not the time to load up on energy funds or commodities ETF’s. If you’ve owned them for long enough, take some of the gains off the table. I am still long-term very bullish on silver (the exchange traded fund has increased in value 33% since I recommended it August 23rd), but over the next 6 months it will give back some of its gains along with most other commodities. Gold in particular is near the end of its spectacular run.
Job Growth Strong November 2, 2007
Posted by Andy Robinson in : News , add a commentThe October payroll numbers were released 20 minutes ago and support the bullish argument for this quarter. Payrolls grew by 166,000 and unemployment stayed the same as last month at 4.7%. This bodes well for consumer spending, which has softened slightly due to the decline in housing prices, but will still thrive as long as jobs and wage growth remains strong. I don’t think we need to be unduly worried by the big stock market drop yesterday. Fundamentals are fine and there’s a lot of money sitting on the sidelines waiting for the 4th quarter rally. Once it looks like it’s starting, we’re going to move up fast because the fund managers and hedgies don’t want to be left behind. This is a good entry point to deploy any cash (if you have any on the sidelines). I’ve been all in for about two months.
Market trips on earnings and consumer spending November 1, 2007
Posted by Andy Robinson in : News , add a commentWith the Dow down over 230 points (as of 10:20 am) investors might get spooked about today’s grim headlines. But consumer spending only softened a tiny bit (0.3% growth rather than the expected 0.4%). Also Exxon missed profits and Citigroup and Bank of America got downgraded. With a time horizon of even 3 months, and mine is considerably longer than that, today’s dip has got to be considered a boon to investors. Although it may annoy me to see Bank of America (which I own) to tumble nearly 4% today, I am not concerned about analyst downgrades. Downgrades tend to be more reactionary to current market conditions than an accurate look into the future. Warren Buffet did not make his fortune buying stocks in favor with Wall Street. He bought names when they were cheap and everyone else was a seller.
Quarter Point Cut October 31, 2007
Posted by Andy Robinson in : News , add a commentAs expected, the Federal Reserve cut federal funds rate by a quarter percent. This should not have any drastic effect on stock prices in the short run due to the fact that this cut was widely expected and priced into the market. It was also the right move given the circumstances. If they’d kept rates firm, investors could have just cause to be concerned that the Fed isn’t being proactive enough in staving off inflation. If we’d cut half a percent, the dollar would have tanked again. Looking a bit further out, there’s enough reason to be confident in equities right now. Earnings have been mostly strong and GDP growth of 3.9% in the fourth quarter was more robust than expected. I am fully invested currently and wish the longs the best of luck in the fourth quarter!
Rally mode begins October 28, 2007
Posted by Andy Robinson in : Market Research , add a commentThe boys from Motley Fool have broken down the stats in their post Now is the Best Time of the Year to Invest. I tend to think that this year’s fourth quarter will stay true to form. We’ve rallied hard and given some of the gains back, so we will likely start the next leg up to new highs soon. The only thing that might throw a spanner in the works is if the Federal Reserve doesn’t kowtow to Wall Street and stands pat on the fed funds rate in it’s meeting on the 31st. I expect that they will cut rates a quarter or half percent which will probably start the rally of financials. I just bought some Bank of America before the closing bell on Friday at $48.03 because I expect them to rebound to about $55 or more by the end of the year.
Buffett interested in South Korea October 25, 2007
Posted by Andy Robinson in : Market Research , add a commentI’ve been leery of emerging markets and warning against the wisdom of owning countries like China since my June post. However, since then, emerging markets (particularly China) have continued to see strong stock market returns and would indicate that my warnings were unjustified. This is a situation, however, where I don’t think the rewards currently justify the risks. It is not always necessary to pay a huge price for terrific growth prospects. Warren Buffett is currently visiting South Korea and has expressed interest in their stocks because the valuations are about equivalent, and probably less, than domestic stocks. And this is with much higher growth prospects based on the dynamic economies in the region.