Risk/Reward Vol. 141
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"To get water from a faucet/You got to turn it
And if you want my love/You got to earn it, earn it, earn it."--lyrics from "You've Got to Earn It" by the Temptations
"So what do I do/With this death wish I have?
With the cliff's edge so near?"---lyrics from "Cliff's Edge" by Patrick Swayze
"And there's history on the juke box/Where the spies and scoundrels dwell
It was the place to go in Bamako/Direction--Buffet Hotel"---lyrics from "Buffet Hotel" by Jimmy Buffett
We are in the midst of the third quarter earnings season. So far, over 60% of the companies reporting have failed to beat expected revenues (although, through cost cutting, 67% have beaten bottom line expectations). The stock market has reacted negatively to the news. The Dow Jones Industrial Average closed down 236 points for the week. If companies want investor's "love" (read, money), they are going to have to "earn it, earn it, earn it." by "turning on a faucet" of financial performance. That did not happen in Q3, and the guidance that companies are giving for Q4 does not portend for the better.
Of course, the reasons why any given company has not performed above expectations are unique, but one common theme is the deleterious impact of the Fiscal Cliff, that catastrophic year-end coincidence of the expiration of the Bush Tax Cuts and the impositon of across-the-board budget cuts that most economists agree will cause the U. S. economy to tail spin into a recession. Most of our leaders believe that allowing us to fall over the Cliff is bad policy, but one side insists that the remedy must be at the expense of entitlements and the other at the expense of tax cuts---neither side having left room for compromise. And all of this must be addressed by a lame duck Congress! Yikes! Despite protestations to the contrary, "with the cliff so near", it looks to me that a sizable number of our elected officials "have a death wish." This is a real and looming crisis, Dear Readers, one that prompted 80 CEO's representing a broad range of political views to petition this week that it be resolved ASAP! Indeed, the Fiscal Cliff is the reason that I am effectively out of the stock market at present.
My decision to liquidate was the topic of discussion this week with one of my subscribers, a devotee of Warren Buffett. Buffett, the nation's second wealthiest man and a person who is deemed so savvy in investing that he is called "The Oracle of Omaha" (or is that "of Obama"?), has long preached that one cannot time the market. Buy great, undervalued companies, croons he, hold their stock for years as the value unfolds and refrain from worrying about issues of the day (e.g. the Fiscal Cliff). But, query, what is the "history of this jukebox"? Is the Buffett Hotel really the "place to go"? If one had invested $50,000 in Berkshire Hathaway (Buffett's holding company) in January, 2000 it would be worth $130,000 today. But if one had invested $50,000 in Berkshire in December, 2007 (just before The Great Recession), it would be worth $46,000 today (with no dividends having been paid). Frankly, Warren, my horizon is not that long. I'm not saying you are a "scoundrel", but I needed (and got) a decent return on my investments over the past 5 years. And I would not have consumed an 8% loss even if served in Warren's Buffet. The Oracle may have the luxury of time---I do not--certainly not 5 years in the hole.
As the world spins toward the Fiscal Cliff, the lovely (and fiscally conservative) Barbara and I sleep soundly with our holdings mostly in cash. If suddenly the market turns and rockets upward with us on the sidelines
"Some people (will) claim that there's a woman to blame
But I know it (will be) my own damned fault"
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