Fw: Risk/Reward Vol. 85
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THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"It's time to stop, hey, what's that sound?
Everyone look what's going down"----Lyrics from "What It's Worth" by Buffalo Springfield
"Think simple, as my old master used to say--which means reducing the whole of its the parts into its simplest terms, getting back to first principles."---Frank Lloyd Wright
"You know, Bill, there is one thing I learned in all my years. Sometimes you just gotta say, "What the f**k, make your move."--- Tom Cruise as Joel Goodson in "Risky Business"
Did we really need the Federal Reserve to tell us on Wednesday that our economy faces a significant risk to the downside? Are we so stupid that on Thursday we needed Secretary Geithner to tell us that the European sovereign debt crisis and our own political infighting constitute threats to the stability of the world's economy? Was anyone really shocked when China, which has remained so quiet these past few weeks, announced on Thursday that its industrial production fell in August and that its import of copper, the bellwether of economic activity, had likewise tumbled? Was the Fed really surprised when its decision on Wednesday to depress long term interest rates to motivate people out of Treasury securities and into equities (Operation Twist) actually backfired and caused a flood of more money into the "safe haven" of T-bills and notes?
Apparently so. Because only in response to this onslaught of bad news and central bank blunders did the markets drop more than 700 points to its early August levels (Dow 10,700's); frankly a place that is at least rational, even if otherwise depressing and uncomfortable. The news on Thursday was almost universally negative----as it should have been.
I say--- IT'S ABOUT TIME! There simply has been no reason for the markets to have bounced off those early August lows---and there won't be unless and until a resolution of the European sovereign debt crisis emerges. All along we should have heeded Buffalo Springfield's advice to "..look what's going down", instead of following the buffalo herd that mindlessly drove the market upward over the past several weeks (especially last week) and then over a cliff this week. (See Risk/Reward Vol. 85 at http://riskrewardblogspot.com ).
OK, so the markets have dropped 7% this week---what did I do? Well, one thing I did was to capture my profits in EUO (Euro short trade) which were almost enough to offset the beating I took in gold--all of which I sold. I view all non dividend paying securities (GLD, EUO, AAPL) as trading material. Buy when down, ride them up, but don't ever hold beyond a modest loss---and anyone holding gold through Friday of this week was exposed to big losses. I cut mine. Ironically, it fell so low I may buy it again next week.
More significantly, I decided to take on some risk. Frankly I like the markets at the lower levels that they reached this week. In deciding to re-enter, I made reference to some of my "first principles". I literally re-read some of my early missives to my wife, written in March 2010, wherein I reflected on the nature of risk as follows:
"All human activity (including inactivity) involves the calculation of risk. Should one cross the street between intersections, at the light or not at all? Should one change jobs? Am I too young to marry? If one doesn't cross the street, will one miss that life changing meeting? If one doesn't change jobs will one be stuck in a rut---will one's current job even be there tomorrow? If one waits too long to marry will one end his life alone? Moreover, even if one is amenable to taking some risk, should one always seek to minimize it? Aye, therein lies the rub. Without risk, no reward; and the greater the risk, oftentimes greater the reward. In stocks, the market reflects a collective calculation of risk. But, market participants are not omniscient, and prosperity is frequently achieved by outwitting them--even to the point of "timing" market participation. That said, market timing should not be confused with market timidity."
Recently, I have been timid in regard the market. With the Dow having dropped to its current level, my research and my admittedly still nascent intuition tells me it is time to be less timid and to take some risk. No one appears to be grasping at false hope.
As the week ended, I took positions in high paying dividend stocks in sectors that I believe will not be further adversely affected by European contagion. Not a lot of positions, and not a significant amount of cash. But a start; reserving at all times my discretion to exit.
For example, those that listened to Frontier Communication's (FTR) CEO this week leaned that the company's integration of its recent acquisitions is on track and that its 11+% dividend is safe. This remarkable percentage dividend, occasioned by the dramatic drop in the overall market (remember: an increase in dividend percentage comes from a drop in stock price) , should keep the stock from any further significant slide, and when the market rebounds, should result in some awesome stock price appreciation. Meantime, ain't it fun to be paid so well while waiting for a market upturn!
I also purchased some Enbridge Energy Partners (EEP) which owns the pipelines that bring 2 million barrels of oil per day from Canada. In effect, it operates a toll road in which the very lifeblood of American activity, crude oil, flows. With its current high dividend, I don't see this one falling much either. I bought it on this week's dip.
As presaged last week, I bought UAN (corn fertilizer) and two oil trusts (PER and SDT) each of which saw some significant price drops. I don't see Europe affecting the need to plant more corn in 2012 or causing oil to stay below $80 per barrel, a price point it reached in this week's sell off. I also bought tobacco , Altria (MO) and cell service, AT&T (T), both of which fell to acceptable levels.
"It's time to stop, hey, what's that sound?
Everyone look what's going down"----Lyrics from "What It's Worth" by Buffalo Springfield
"Think simple, as my old master used to say--which means reducing the whole of its the parts into its simplest terms, getting back to first principles."---Frank Lloyd Wright
"You know, Bill, there is one thing I learned in all my years. Sometimes you just gotta say, "What the f**k, make your move."--- Tom Cruise as Joel Goodson in "Risky Business"
Did we really need the Federal Reserve to tell us on Wednesday that our economy faces a significant risk to the downside? Are we so stupid that on Thursday we needed Secretary Geithner to tell us that the European sovereign debt crisis and our own political infighting constitute threats to the stability of the world's economy? Was anyone really shocked when China, which has remained so quiet these past few weeks, announced on Thursday that its industrial production fell in August and that its import of copper, the bellwether of economic activity, had likewise tumbled? Was the Fed really surprised when its decision on Wednesday to depress long term interest rates to motivate people out of Treasury securities and into equities (Operation Twist) actually backfired and caused a flood of more money into the "safe haven" of T-bills and notes?
Apparently so. Because only in response to this onslaught of bad news and central bank blunders did the markets drop more than 700 points to its early August levels (Dow 10,700's); frankly a place that is at least rational, even if otherwise depressing and uncomfortable. The news on Thursday was almost universally negative----as it should have been.
I say--- IT'S ABOUT TIME! There simply has been no reason for the markets to have bounced off those early August lows---and there won't be unless and until a resolution of the European sovereign debt crisis emerges. All along we should have heeded Buffalo Springfield's advice to "..look what's going down", instead of following the buffalo herd that mindlessly drove the market upward over the past several weeks (especially last week) and then over a cliff this week. (See Risk/Reward Vol. 85 at http://riskrewardblogspot.com ).
OK, so the markets have dropped 7% this week---what did I do? Well, one thing I did was to capture my profits in EUO (Euro short trade) which were almost enough to offset the beating I took in gold--all of which I sold. I view all non dividend paying securities (GLD, EUO, AAPL) as trading material. Buy when down, ride them up, but don't ever hold beyond a modest loss---and anyone holding gold through Friday of this week was exposed to big losses. I cut mine. Ironically, it fell so low I may buy it again next week.
More significantly, I decided to take on some risk. Frankly I like the markets at the lower levels that they reached this week. In deciding to re-enter, I made reference to some of my "first principles". I literally re-read some of my early missives to my wife, written in March 2010, wherein I reflected on the nature of risk as follows:
"All human activity (including inactivity) involves the calculation of risk. Should one cross the street between intersections, at the light or not at all? Should one change jobs? Am I too young to marry? If one doesn't cross the street, will one miss that life changing meeting? If one doesn't change jobs will one be stuck in a rut---will one's current job even be there tomorrow? If one waits too long to marry will one end his life alone? Moreover, even if one is amenable to taking some risk, should one always seek to minimize it? Aye, therein lies the rub. Without risk, no reward; and the greater the risk, oftentimes greater the reward. In stocks, the market reflects a collective calculation of risk. But, market participants are not omniscient, and prosperity is frequently achieved by outwitting them--even to the point of "timing" market participation. That said, market timing should not be confused with market timidity."
Recently, I have been timid in regard the market. With the Dow having dropped to its current level, my research and my admittedly still nascent intuition tells me it is time to be less timid and to take some risk. No one appears to be grasping at false hope.
As the week ended, I took positions in high paying dividend stocks in sectors that I believe will not be further adversely affected by European contagion. Not a lot of positions, and not a significant amount of cash. But a start; reserving at all times my discretion to exit.
For example, those that listened to Frontier Communication's (FTR) CEO this week leaned that the company's integration of its recent acquisitions is on track and that its 11+% dividend is safe. This remarkable percentage dividend, occasioned by the dramatic drop in the overall market (remember: an increase in dividend percentage comes from a drop in stock price) , should keep the stock from any further significant slide, and when the market rebounds, should result in some awesome stock price appreciation. Meantime, ain't it fun to be paid so well while waiting for a market upturn!
I also purchased some Enbridge Energy Partners (EEP) which owns the pipelines that bring 2 million barrels of oil per day from Canada. In effect, it operates a toll road in which the very lifeblood of American activity, crude oil, flows. With its current high dividend, I don't see this one falling much either. I bought it on this week's dip.
As presaged last week, I bought UAN (corn fertilizer) and two oil trusts (PER and SDT) each of which saw some significant price drops. I don't see Europe affecting the need to plant more corn in 2012 or causing oil to stay below $80 per barrel, a price point it reached in this week's sell off. I also bought tobacco , Altria (MO) and cell service, AT&T (T), both of which fell to acceptable levels.
Next week, I will monitor the situation but will look to buy utilities. The one area that I will avoid are financials--no banks, no insurance two areas that populate one of my favorite types of investments--preferred stocks.
In taking these "risks", I was reminded of another Buffalo Springfield warning---"Paranoia strikes deep/ Into your life it will creep/ It starts when you're always afraid/ Step outta line, the man comes and takes you away." Paranoia will not rule my life---as Joel Goodson says "Sometimes you just gotta say, "What the f**k, make your move."
In taking these "risks", I was reminded of another Buffalo Springfield warning---"Paranoia strikes deep/ Into your life it will creep/ It starts when you're always afraid/ Step outta line, the man comes and takes you away." Paranoia will not rule my life---as Joel Goodson says "Sometimes you just gotta say, "What the f**k, make your move."
