Sent: Monday, June 28, 2010 5:04 PM
Subject: Risk/Reward vol. 1

  THIS IS NOT INVESTMENT OR TAX ADVICE.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STSTED HEREIN.

This is my first Risk/Reward posting.  I send it to each of you with the expectation that you will respond to me individually or to the group.  Absent any response (and by that I mean some substantive input), I will assume you have no interest and will not send you any further postings.

As I have explained to each of you, I am in search of a 6%, pre tax return.  Throughout most of my life, this would have been a layup.  From 1969 through 1997, the 10 Treasury rarely fell below 6%.  From 1980 through 1985, they never fell below 10%.  So, at this stage in my life all I need is a little inflation.  Indeed, right now 90% of my money is parked,  waiting for that to happen.  Unfortunately, it looks like we are into a prolonged period of stagflation and perhaps deflation.   So, Barb and I decided to get off our duffs, and to become more active money managers.

Typically, persons of my age (59) are counseled to be 60% in fixed income; primarily bonds.   In normal times, I would agree.  However since, 2008, the "flight to safety" has resulted in an unprecedented inflow into bonds and bond funds.  In 2008-2009, $400billion of new money went into bond funds while $300billion left stock funds.  As a consequence, bond yields (government, municipal and corporate) are depressed----I believe well below their relative risk (Any contrary opinions are hereby solicited).   Congratulations to those who were into bonds before 2008.  I hope you enjoy the return and/or the premium you get if you decide to sell.   I hold a few, but only as an experiment to determine how easy/difficult they are to liquidate.

Equity has been a difficult source of gain, at least for the indiscriminate.  The S&P500 and the DJIA have both actually lost ground over the past 10 years.   Indeed, the old saws of "Buy and hold" and  "Buy an index fund" have been losing propositions.   Market timers, such as Bill O'Neill of IBD fame, have done well because they do not allow themselves to ever take more than an 8% loss on any one stock and they exit the market all together when it is in distribution/correction.  For instance, O'Neill is basically in cash right now.

In time such as these, Cramer counsels purchasing high quality dividend stocks that are "accidentally" cheap and selling them if they dip too much or if the market takes off and you can do better in growth stocks.  For people my age he would have us stay mostly in these widow and orphan plays.   In another email I will send you my current holdings and my watch list for comment and criticism.

I am beginning to study preferred stocks.  As you know, the financial sector dominates in this area and they are thinly traded, but I am in the process of identifying some that make sense