Risk/Reward Vol. 134
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"But you tell me/Over and over and over again, my friend
That you don't believe/We're on the eve of destruction"---lyrics from "Eve of Destruction" by Barry McGuire
"Some speak of the future/My love she speaks softly
She knows that there's no success like failure/And that failure's no success at all"---lyrics from "Love Minus Zero" by Bob Dylan
"Insight to what's going on/Information keeps us strong
What you don't know can hurt you bad/Take it from me you'll be walkin' around sad"---lyrics from "The Knowledge" sung by Janet Jackson
Faced with the Fiscal Cliff, the Eurozone debt crisis and the slowdown in China, several pundits, wags and commentators "believe/We're on the eve of destruction." But as I have written "over and over and over again, my friend", I believe salvation is available through a Fiscal Cliff compromise, further loosening of monetary policy here (quantitative easing) and in Europe (bond buying) and an infrastructure spending spree in China. So, when Fed Chairman Ben Bernanke, in a much anticipated speech at Jackson Hole, WY on Friday, did not commit firmly that quantitative easing was near, I thought the bottom would fall out of the stock market. I was wrong---it did not. The Dow Jones Industrial Average gained 90 points on Friday and closed the week down 66 points.
Well, as long as I am confessing error, I might as well acknowledge another miscalculation---iron ore. Just two weeks ago, I was touting Cliffs Natural Resources (CLF) and BHPBilliton (BHP). It was my conclusion that both had bottomed and would not fall further because of their healthy dividends. Boy, was I wrong, as both continued to plummet. But, as Bob Dylan wrote "there's no success like failure." What the hell does that mean, anyway? What does any Dylan lyric mean? I choose to believe that it means that we should learn from our failures. I learned--or should I say, relearned-- that I cannot and thus should not guess a bottom. Catch stars on the rise, not on the descent. I have no doubt that both of these stocks will rebound, just not now. I jumped too soon, and as Dylan says "failure's no success at all." What?
Well, as long as I am stuck in basketball analogies, let's talk about stock picking in general. Clearly, practice in picking stocks, like practice at the free throw line improves one's odds. But, practice does not make perfect in either pursuit. The average NBA player makes 75% of his free throws, and I bet that the average professional stock picker's odds aren't any better. Mine certainly are not, and I really work at it. That is why the first rule of stock picking is knowing when to sell a loser. My loss limit is 8%. In addition, to lock in profits, I adjust my 8% trigger upward if a stock appreciates significantly. In a world of $7 transaction costs, one need not absorb big losses---or forfeit big gains.
Ain't the information age wonderful! "Insight to what's going on" is literally at your fingertips via the internet. In the investing world, "what you don't know can hurt you bad", but with access to the web there is no excuse to "be walkin' around sad". The quality and the quantity of analysis on just one website, www.seekingalpha.com , is simply astounding, and there are several more sites of similar ilk. I peruse SeekingAlpha nightly, especially the tab entitled "Dividends and Income". It is the source of many of my investing ideas, and a reference I consult before every purchase.
In today's reality of depressed interest rates, achieving a decent return is hard work indeed. I long for the days of buy and hold, but alas I believe them to be gone--at least for now. Today, one simply can not afford to sit still. As Dylan wrote so many years ago,
"If your time to you is worth savin'/Then you better start swimmin'
Or you'll sink like a stone/For the times they are a changin'. "
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