Monday, August 8, 2011

Now What???

As the markets take a turn off of Greed Street on to Fear Avenue (which started in April ), it's time to pull-over to the slow lane and watch the traffic jam. People are running for the exits. The S&P downgrade has spooked the market. It's important to note that the other rating agencies like - Fitch and Moody's don't feel the same as S&P. The CBO ( Congressional Budget Office ) has commented that S&P has made a 2 Trillion dollar "mistake" in their 10 year calculations. But S&P's downgrade/outlook is for the next 2-3 years -what gives? You would expect the rating agencies to have a longer-term outlook for a sovereign like the U.S.  At the end of the day, you have to ask yourself if the companies in your portfolio are really worth 15%-20% less now, then a couple of months ago. In most cases they are not. It's also interesting to note that Carlos Slim ( currently the richest guy in the world ), made his mark by buying  businesses AFTER the 1982 Mexico debt default (not downgrade, but actual default). Businesses still have value that on the whole, will increase over time. As I wrote recently, it's good to have cash. There are now many high quality companies available at discount prices. But, you have to move slowly, as not to get run over. So now is not the time to go "all in" but just pick away. With the current market conditions, it is also a good reminder why it's important to have an unlevered ( little or no borrowings against your portfolio ) account. It's time to sit tight, with no bothersome calls from your broker's credit department, and pay close attention to the price your paying for stocks. There is no hurry - move slowly.

Remember Buffett's quote: " the market is there to serve you, not instruct you"

Tuesday, August 2, 2011

Mid-Summer Gyrations


uncle sam

You have no doubt heard by now that the U.S. debt ceiling deal has been passed. For interest sake, the debt ceiling has been raised 78 times over the past 50 years. Many of those previous deals never made the front page news. This time, it hit the front page of every news paper around the world as the U.S. struggles with chronic deficits. As a bottoms up ( looking at individual companies ) investor, I don't spend much time trying to figure out what's happening in the overall economy. I just look for good cheap stocks. It reminds me of the famous investor Peter Lynch's quote:


  

 "Predicting the economy is kind of like trying to predict the weather.  Yes, you can get close
      but very rarely are you completely right."



After all, how many people accurately predicted the 2008 financial collapse? Not me.
However, the pessimism that has gripped the markets for the last while, has created opportunity.
I recently wrote, that it's a good time to have cash. Well, now it's a good time to start deploying that cash - but slowly. But remember, we are only 5-7% off of all-time highs, so you have to be very price sensitive as not to overpay. But there's value for long-term buyers of equities. I've recently added to CSCO, BAC and BIG.

There's also value in FFH.TO, WFC, MFC

Disclosure: I own FFH.TO, WFC, MFC, CSCO, BAC, BIG