THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
Back from a great ski trip.
Last week's decline on Tuesday and Wednesday provides two lessons (at least).
First, when a general market panic occurs, great buying opportunities present. Thus, one should always have "reserve" cash available (not to be confused with that portion of one's holdings that are permanently in cash). The Libyan upheavel quite reasonably resulted in certain "corrections" (read, declines) in sectors such as tankers, energy, etc., but should have had little if any impact on other sectors such as smartphones. Yet, the overall panic resulted in big declines in some of my smartphone favorites such as Apple (AAPL), Skyworks Solutions (SWKS) and Arm Holdings (ARMH). A purchase of these stocks on Tuesday or Wednesday would have resulted in 4, 11 or 12% gains respectively by this morning. One does not want to fund any such purchase, however, by selling otherwise excellent holdings into a declining market simply to raise cash. Thus, always have some cash available for such moments. Raise the cash in upward or flat markets, not during a panic.
Second, the reason even excellent companies such as the ones listed above fall so precipitously during a panic is that none of them has the safety net of a good yielding dividend or interest coupon. Last week's panic simply did not impact me as negatively as those in index or growth funds because 80% of my securites have outsized dividend or interest payments. Almost no matter the general news, solid companies with good dividends/interest payments will not drop violently because their shareholders are invested primarily for the dividend/interest return, not principal appreciation. A utility paying a 5 or 6% dividend simply is not going to fall 10-15% on one or two days of general (not company specific) bad news, such as Lybia. If it does, snap it up quickly. You will achieve a double return---first, an dividend paying 50 to 70 basis points more than the day before and second, a stock worth 10-15 % more once the market rebounds.
No comments:
Post a Comment