The Gunslinger said, "My advice to you is to get yourself a Holy Book, then learn how to pray."
The Preacherman said, "My advice to you is to get yourself a gun, then learn how to shoot."
The Politician said, "My advice to you is to get yourself free of superstitions and weapons, then learn how to trust in me."


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Wednesday, February 4, 2009

Hard Times Investing: Update

During the months of December 2008 and January 2009, I did not buy any equity funds. The markets in December looked too much like a false rally for me to have any interest. In January the markets did not drop low enough for me to squeeze the buy trigger.

Many pundits are saying that the markets are making a bottom, and that we should be making purchases in the S&P-500 range of 750 – 850. I get a little nervous when pundits are nearing a consensus on a market bottom; it often means we will suffer another 10% - 20% drop. Until there is substantial credit available for investors to buy on margin, our markets will not sustain a rally. Leverage is what makes the big money in investing, and it moves markets. For now, the “range traders” remain hard at work.

Just for the fun of it, I will act as a public fool and make the dire prediction that the markets will bottom around the range of 675 for the S&P-500. When the headlines read, “Markets doubt Obama,” and the Obama administration starts spending a great deal of airtime defending their actions, the markets will have hit a bottom. I seem to recall reading that headline during the tenures of all of the Presidents that served during my lifetime. The markets turned upwards at that point for most of them.

Currently my portfolio is down 18% from its high point. With my mix of funds, I believe the portfolio is positioned to be substantially in positive territory by the time the S&P-500 reaches 1200. That would not be too bad of a recovery for me, considering the S&P-500 has crashed from the mid 1500s. 49% of my portfolio is cash. Should the markets decide that this truly is the bottom and go up from here, I will do quite well. If the market trades sideways for the next year or more, I may attempt a couple of short term “range trades.” If the market drops to the range of 750 for the S&P-500, I will most likely buy. If the S&P-500 drops to 675, I will likely buy some more.

If you see me selling my belongings at the roadside, you can safely assume that I was very wrong. Several short and mid-term worst-case scenarios worry me.

1) Another terrorist attack on U.S. soil
2) War with Iran or Korea (or both)
3) The Democrats in Congress continue emasculating their own President, leading to a sequel of the Jimmy Carter regime.
4) This insane orgy of spending on bailouts and economic-stimulus not working as intended. If it does work, we will likely run headlong into an inflationary period that will shorten the life of a newly stimulated economy. Yes, there is a strong possibility of a whipsaw, boom and bust economic cycle.

Remember, nothing I wrote in this entry is advice, so keep you lawyer on a leash.

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