Risk/Reward Vol. 174
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Could use some patience/Gotta have some patience
All it takes is patience/Just a little patience."---lyrics from "Patience" by Guns N' Roses
And so its true/Pride comes before a fall
I'm telling you/So that you won't lose it all
I'm a loser/And I am not what I appear to be."---lyrics from "Loser" by The Beatles
"Now I'll be bold as well as strong
And use my head along side my heart
And I will wait/I will wait for you."---lyrics from "I Will Wait" by Mumford and Sons
I "could use some patience. Gotta have some patience. All it takes is patience. Just a little patience." Get the point. As reported last week, I was so proud of my Second Level Thinking, I bought several positions--- without considering other factors . On Tuesday and Wednesday as the bond market continued to deteriorate, bond like assets (such as those that I bought) were punished as well. Note to self: Second Level Thinking is not a substitute for patience. Clearly, I jumped too soon. I am not good at timing a market bottom, and Tuesday,Wednesday and Friday showed me that we may not be there yet. I have not and do not profit by buying at the bottom or selling at the top. I play the middle zone-- but that takes patience. Let the market for bond-like securities (e.g. those that pay predictable dividends such as REITS, preferred stock, exchange traded debt, utilities, etc.) find its equilibrium and buy on the way up---that's my game.
"And so it's true. Pride comes before a fall." As a consequence, "I'm a loser" this week. For those that hailed me as a victor for my exit in May, "I am not what I appear to be." But, I did not lose much because I was less than 20% invested and because I set my loss limit (a mental one not a stop/loss order) very close to my entry price. If positions reached that level, I sold. Had I stayed put, I would have recovered most of my losses on Thursday as the market rallied on a report by Jon Hilsenrath of the Wall Street Journal that Federal Reserve Chairman Bernanke likely will give guidance next week that QE3 will not end soon. Thursday's rise notwithstanding, my mistake was not in selling on Wednesday, but in buying in the first place. There is no dishonor in cutting losses and no second guessing in rules based selling. According to all that I have read (and I have read a lot on the subject), the number one rule for most successful investors is to cut losses and to let winners run. "I am telling you (my story)/So that you won't lose it all."
But rest assured, once there is confirmation of stablization in the market in general and in bond prices/yields in particular, I "will be bold as well as strong" in my buying. Unlike last week, however, "I will wait, I will wait" for that confirmation--- which will not come earlier than Bernanke's press conference on Wednesday. This time I will "use my head along side my heart." And I have some juicy prospects under consideration. They include some that I sold this week (just because I was premature in my buying doesn't make them bad selections). Also, take a look at the WSJ Closing Table for Preferred Stock and Exchange Traded Debt ( http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html?mod=mdc_h_usshl#C ), a sector that has been hit unmercifully since the release of the Federal Reserves minutes on May 22nd ( Vol 171 http://www.riskrewardblog.blogspot.com/ ). There you will see a wonderland of potential selections for a yield hunter like me. For those with a taste for more speculation, look at the mineral/mining sector. Rio Tinto (RIO) hasn't traded this low since 2009, a time when iron ore was selling for $60/ton not $112/ton like today---and it pays a 4% dividend while you wait for the price to recover. The same can be said for CLF and BHP. Don't buy any of these without further study, but at first blush they are either woefully underpriced, or the world is headed for a major contraction. Iron ore=steel, steel=manufacturing, manufacturing=economic growth. The opposite is true as well.
I am convinced that the current market volatility is creating excellent buying opportunities and will reward the "Patient" with a trip to:
"Paradise City/ Where the grass is green/ And the girls are pretty."
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