Risk/Reward Vol. 352
THIS IS NOT INVESTMENT OR TAX ADVICE . IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
This week reminds us that Mr. Market is as responsive to politics as he is to economics, monetary policy or any other such stimulus. After all, the post election uptick is called the "Trump Rally." Thus, if The Donald's election can cause the market to rise, his bumbling can cause it to tumble. Why? Because his bumbling puts at risk tax relief and other reforms which underlie Mr. Market's euphoria.. That stated, Wednesday's swoon was hardly a correction. The recovery at week's end left each of the three major indices down approximately 1/2% for the week. Apparently, nothing...not even the threat of impeachment-- can slow this market. What a sight to behold!
And speaking of sights to behold, did you see that Amazon celebrated the 20th anniversary of its initial public offering this week? One hundred dollars invested in that IPO would be worth $64,000 today. Wow! I hope some of you had the foresight to buy AMZN then or when it faltered in 2001. I was not so lucky. At about the same time as AMZN's IPO, I took $100,000 and joined a group making a private investment in a publicly traded entity (appropriately called a "PIPE"). The company had preliminary orders from WalMart for a patented storage cabinet and had just assumed worldwide distribution rights for a large Canadian paper company. This investment seemed a much better bet than putting money into an online bookseller. One of the conditions of the PIPE was that I could not sell my stock for one year; an arrangement called (also appropriately) a "lock up." Immediately after my investment, the stock jumped in value, and I was feeling very good. But as the year expired, the stock tanked. Soon after it was delisted and in time I rode that $100,000 to ZERO. Had I put it in Amazon, it would be worth $64,000,000---that's 64 million---today. Woulda, coulda, shoulda, indeed.
The above is just one of my turn-of-the-century investment horror stories. So, Dear Reader, you can appreciate the genesis of my conservative investment approach today. I will never catch the next Amazon. But, henceforth, I will not get caught in an illiquid investment. And I will not ride one to the bottom ever, ever again. I keep to my knitting and sleep well at night. So what opportunities did my knitting provide me this week? The Donald's bumbling predictably produced a "flight to safety"; that is a rush to buy US Treasury bonds, the safest investment in the world. As the demand for these bonds increased, so did their price. And as we all know now, an increase in a bond's price means a drop in its yield. Normally, preferred stock closed end funds trade in lockstep with Treasury bonds. Sometimes, however there is a lag. I took advantage of such a lag this week and bought JPC, a quality fund with a very good yield trading at a substantial discount to net asset value.
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