Tuesday, November 11, 2008
The market can remain irrational longer than you can remain solvent." - John Maynard Keyne
There is a Buyer's Strike in the U.S. equity markets. Volume has shriveled up like an over 40 starlet starved of her botox. No buyers, low multiples, high dividends... hmmm.... there is a pony in here somewhere.
Let me share with you my 20+ years of experience.
Investors buy high, and sell low. They wait for markets to "stabilize" (go up 20% to 30%) before they buy so that they can get killed in the subsequent profit taking.
Investors over concentrate, don't hedge, never short, hold losers, sell winners, skip research... and wonder why they don't make money in the market.
Here is a little fund fact to know:
Over the past 50 years DIVIDENDS represented nearly 1/3 of the total return investors received. Over the next 20 years, because stock prices of dividend payers have fallen so low, dividends could be well over 50% of an investor's return. Look among the wreckage - you will find yields of well over 5%, some much higher, in a number of "best of breeds" - and these companies increase said dividend over time. A covered call writing strategy on top of these names would make even the most cursed investor look like a genius.
Everything is in the price you pay. The world equity market has lost 50% of its value, peak to today. The time to have sold equities and commodities was months ago. The time to buy bonds was several years ago. Don't compound one bad bad trade with another. Forgive yourself. If you cannot, email me, and I will forgive you by return email. Your next brilliant idea has no idea how dumb your last one was.
For example: In 1994, the beginning of the 1990's Bull Market I had a string of poor trades. I could not find my ass with both hands. I went back to the drawing board, and by luck or skill (does it matter?) I put together my hottest streak until I hit Crude Oil last year. I remember investors shunning me during my hot streak. They really screwed the pooch on that one. What the hell did "Toys R Us" have to do with Michigan National Bank Corp (Toy was a big loser for me; Michigan National was the first of a series of picks that changed my career)? Not a thing, except the broker recommending them.
What does the equity market of November 2008 have to do with the equity market of July 2007? Nada. Zip. Zilch.
I cannot make specific recommendations in this forum but the selling of late has created the opportunity to pick up some of the premier energy assets with dividends that will pay off in spades over the years. That is, unless the energy crisis gets permanently called off.
I would not bet on that.
Remember, every asset (besides Gold) you hold is someone ELSES liability. Those bonds you own? Somebody owes you the money. The cash in your wallet? The Federal Reserve is on the other side... its their liability. You gotta put your money somewhere. Who (or what) do you want on the other side of the balance sheet? For my money, I want Oil, Uranium, Gold, Food, etc... and I want it to pay me dividends.
This does not mean to say that I am calling a "bottom". It does mean that I think we are pretty close (Housing is getting close, too). A year from now, my bet is the market will be higher, and if you get 6% in dividends and another 10% to 20% in covered call premiums... it would be awfully hard to lose money. Not that some folks won't be able to do just that, but it won't be easy.
By way of disclosure: I will be selling naked puts (trying to lower my entry price), and selling covered calls on the positions I already have (to bring in income and hedge my bets).
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 6:27 PM