THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"To measure is to know" --- Lord Kelvin
"Knowledge is power"---Sir Francis Bacon
These aphorisms stand the test of time--and never more than this week in relation to my portfolio. Allow a digression. Back in the dot com days when last I was this active in investing, down days would depress me. I don't mean merely upset--I mean depress. I would sulk and refuse to even look at my investments for days on end, fearful of what I would see. As the NASDAQ spiralled down from 4600 to below 2000, I looked less and less and lost half our liquid net worth. This time around (I started actively investing again in May, 2010), I decided that I would know how I did---every single day. Every afternoon, I calculate my gains and losses---to the penny. Investing is no different from weight loss. You cannot make progress unless you weigh yourself every single day. TO MEASURE IS TO KNOW.
And, KNOWLEDGE IS POWER. As painful as Monday and Thursday of this week were, they confirmed a lesson that cannot be learned too often; to wit, securities that pay a decent divdend or interest rate are a much better hedge against a falling market than those that do not. While my high flying favorite Arm Holdings (ARMH) fell more than 15% and forced me to sell pursuant to my first rule of investing (absorb no more than an 8% loss), my sleepy bank preferreds and all of my debt exchange traded debt (e.g. AVF, AFF, AAR, ARY) held even or rose, all the while paying 7% or better annually in dividends or interest. I remained thankful this week that more than 80% of my invested portfolio resides in such securities. If you want to investigate these types of securites, take a look at the list published each day athttp://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C. and further research them on www.quantumonline.com.
Big oil does not fare well in these days of uncertainty in the Mid East. I decided to take BP profits in my non taxable 401(k) (see footnote below).
With the cash I raised from BP (one of my biggest holdings) and from the blow out in ARMH and Ford, I kept my eye on signs that it may be right to invest in some more speculative plays (since these sales were from my speculative portion of the portfolio). Plus, with PIMCO, one of the largest purchasers of US government securities, deciding that it will no longer purchase mid term "treasuries" because of its belief that they will not keep up with inflation, I do not want to be overweight in cash. I made the following moves.
Tech was hit badly this week from the report by Finisar that the optical network build out in China is slowing and the report that tablets, other than the IPad are not selling. But when, Apple fell to 346, I had to buy especially with the introduction of the IPad II. Google is getting killed by the short sellers, but when it finds support (stays even or rises on a generally down day), I am going to open a position. Long term, this is just a great opportunity.
Copper, the ultimate barometer of the world's economy, has fallen to a two year low on reports that China, which consumes 40% of the world's copper, has an oversupply, at least temporarily. But, with China having committed to its population to build over 36,000,000 housing units in the next 5 years and with the events in Japan, I decided to buy Southern Copper on Friday on a dip to $39. Its 6% dividend at that level made the purchase much easier.
As a footnote on measurement, knowledge and power, please note that I am sitting down to do another cut on my income taxes. Yes, I do my own personal income taxes and always have. I dare say that I am the only reader who does his/her own taxes. I do them because they are the single greatest view into how money is earned--and spent. Even if you do not do your own taxes (and business owners simply do not have the time), spend some time and money with your accountant and get a lesson on some surprisingly simple investing tax rules (short and long term capital gains and losses, "qualified" dividends, UBIT---for both your individual and your 401k accounts). Knowledge of taxes will make and save you a great deal of money over time. Indeed, my greatest criticism of Cramer is that he glosses over taxes in his books and his show.
Lastly, investing is a pain in the ass. Forcing myself to do my daily calculations is about as enjoyable as weight loss, aerobics or quitting smoking. But, the long term benefits of each of these activities are beyond debate.
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