October 1, 2011 UP AND DOWN

Fw: Risk/Reward Vol. 86

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

Greetings from Firenze--truly one of the most beautiful places on earth.

"The word aerobics came about when the gym instructors got together and said:  If we are going to charge by the hour,  we can't call it Jumping Up and Down."---Rita Rudner

"We can never know about the days to come/But we think about them anyway

And I wonder if I'm really with you now/Or just chasin after some finer day

Anticipation, anticipation is making me late/Is keeping me waitin'---Carly Simon lyrics from "Anticipation"

"If I die young, bury me in satin/Lay me down on a bed of roses

Sink me in the river at dawn/Send me away with the words of a love song."---Band Perry lyrics from "If I Die Young"

If aerobics is the appropriate word in the gym, "volatility" is the word in this up and down market.  But how volatile has it been in reality?  Do yourself a favor and go to Google or Yahoo Finance, click on the 3 month chart of the Dow Jones Industrials or the S&P 500.  Note the choppy pattern since early August, but also marvel at its "disciplined" pattern:  never higher than 11,700 on the Dow or 1220 on the S&P, but never lower than 10,700 or 1120 respectively.  Welcome to what traders call  a "trading range".  This "trading range" presents profit opportunities to traders who buy index ETF's (or their components) at the "floor" and sell at their highs.  This is a way to make some money, but not a very comfortable one for an "investor".  That said, one has to marvel at how the "floors" of 10700 and 1120 have held despite some serious market "body blows" like the threatened US default back in August and the non stop drama of the European sovereign debt crisis.  When will it ever end?  Talk about ANTICIPATION--and "keeping me waiting" to invest more.

With the markets absorbing the "yea/boo" daily news and yet, still holding the floor, I re-entered 10 days ago: not with the idea of trading, but of cherry picking dividend paying stocks on slight dips.  I say "slight" because I only want to buy stocks that have a stronger floor than the indexes; those that pay sufficiently high dividends that their price will not drop precipitously absent some cataclysmic news such as a US default .  I no longer consider a Greek default "cataclysmic" since the markets have had time to fully consider its ramification. 

For  a good primer on this approach, chart the performance of Duke Power over the S&P or the Dow.  You will see DUK holding very steady in the storms that have characterized the stock markets recently.  Do the same for tobacco (MO, RAI), other utilities and wireless telecoms (AT&T and Verizon).  This used to be the case with the financial industry, but no more.  If you seek tranquility, stay away from these--even their preferred shares-- at least for the time being.  

Another industry that has held its own is the funeral and cemetery business.  Recently I bought stock in Stonemor (STON) which has been buying funeral homes and cemeteries across the country for the past several years.  Obviously, it has been keeping customers satisfied by catering to their every "last" wish--be it a "bed of roses", a "silk dress" or a "love song".  Organized as a master limited partnership it pays a very hefty 8+% dividend.  I also like and bought some CenturyLink (CTL) exchange traded notes (CTQ and CTW), proceeds of which will assist in the incorporation of the old Qwest assets into CenturyLink.  These 7.5% beauties are payable before CTL's hefty (and heretofore sacrosanct) 8% common dividend.  As a consequence,  I view these investment grade notes as reasonably secure----and they are instantaneously liquid.

If you need a reminder of the genius of America, read the September report of the National Petroleum Council on the future of "home grown" oil and gas production.  In the period 2008 to 2011, the US went from being a net importer of natural gas at $8/million cu ft to an exporter at $4/million cu ft and has increased known oil reserves by many fold, both by bringing new technology (fracking) to the oil/gas patch.  In the process, tens of thousands of new jobs have been created---and many more await, once regulators remove the barriers.  It just serves as a reminder---if you want a problem fixed, put a profit motive behind its resolution.