Risk/Reward Vol. 149
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"You lift me up/When I'm on the ground
But as soon as I get up top/You send me tumblin' down
Your love is like a see saw."---lyrics from "See Saw" as sung by Aretha Franklin
"I can see clearly now/The rain is gone
I can see all obstacles in my way
It's gonna be a bright, bright sun shiny day"---lyrics from "I Can See Clearly Now" sung by Johnny Nash
"It's crazy to hold on/When you won't open
So now I'm closed for love."---lyrics from "Closed for Love" sung by Ellie Goulding
Again this week, the Fiscal Cliff negotiations (or lack thereof) turned the stock market into a "see saw". Early in the week, news "on the ground" of a possible deal "lifted up" the Dow Jones Industrial Average (DJIA) more than 200 points, only to "send us tumblin' down" Wednesday on news that the House Republicans were opting for Plan B, a measure the President would not accept. Thursday's modest gains were eliminated on Friday with news that Speaker Boehner had lost control of his caucus and that even the modest tax increases in Plan B were unacceptable to the House. The DJIA closed up 55 points for the week, but was directionally negative.
That said, come the New Year, we SHOULD "see clearly." The "rain SHOULD be gone", and we SHOULD "see all obstacles in our way." The clarity of just knowing the consequences--1) of a deal or 2) of no deal and a leap over the Cliff-- SHOULD bring "a bright, bright sun shiny day." And once again I SHOULD be off the sidelines and in the market, enjoying a decent return. Unless of course, our collective pain is extended by a minor and temporary legislative kick-of-the-can as suggested by the President after Friday's close. Thus, my use of SHOULD.
As indicated previously, my re-entry, when it occurs, will include a heavy dose of closed end funds (CEF's). My "love for closed" end funds comes after much study and investment therein over the past two years . Like their cousins mutual funds and exchange traded funds (ETF's), CEF's offer instant diversification. As a consequence, I will not go "crazy trying to hold on" to or to track individual stocks. A CEF is created via an intial public offering of a set number of shares. The proceeds from the offering are invested by fund sponsors (e.g. BlackRock, Nuveen, Legg Mason, etc.) into assets that are consistent with the particular fund's stated purpose (e.g. investment in large cap stocks or corporate bonds or senior loans, etc. ). After the initial offering, the fund is "closed" to further investment and "won't open". Thereafter, the shares of the closed end fund itself are traded on the stock exchange. The price of a CEF share varies from day to day depending on a variety of factors. Unlike its cousins, mutual funds and ETF's, CEF's can trade above or below their net asset value. Most closed end funds are income oriented which makes them very appealing to me-- an inveterate yield hunter. Income is generated from dividends/interest paid by the securities owned by the fund, from capital gains from selling those securities and/or from premiums from selling covered calls. CEFs are particularly attractive in times of low interest rates (like now) because they can employ leverage (borrowed funds) to enhance returns---something that mutual funds and ETF's cannot do. Read more about CEF's at www.CEFConnect.com , an excellent educational and research source. Over the next several editions, I will be discussing my choices in detail. Each of them has an excellent track record, and most hold at least a Bronze rating by Morningstar, a highly regarded financial reporting company, to which I subscribe, that tracks thousands of funds.
Within a few days, we SHOULD be unfettered---like Aretha, released from the "chain, chain, chains" of Fiscal Cliff uncertainty . Having been "treated mean" and been "treated cruel" by the "chain of fools" that populate our government, the unknown SHOULD be known, and fundamentals SHOULD dictate market performance. Please, Washington, if for no reason other than R-E-S-P-E-C-T for your constituents, next week either do a deal or don't. Do not prolong the agony.
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