Posts with tag investing

A Plan Comes Together...

Sep 28th 2008 7:06PM | bailouts, business, economy, financial, investing, markets, politics

"Those who have knowledge, don't predict. Those who predict, don't have knowledge. " - Lao Tzu
"The investor's chief problem - and even his worst enemy - is likely to be himself" - Benjamin Graham
 "The four most dangerous words in investing are This time it's different" - Sir John Templeton
I have no real idea of what the hell is going on, or what will be going on, in the financial markets. There's such a mix of fundamental market dynamics and behavioral market dynamics that it's pretty much impossible to wrap your head around fully.

Here's an odd scenario. Vanguard has a Tax Exempt Money Market whose yield should be, and usually is, extremely minimal (between 1-2%). It's currently running at 5.05%. It's producing a higher return than their taxable prime MM. Now, the market is acting accordingly. Folks are fleeing muni's into treasuries thinking that municipalities are going to get nailed with reduced revenue from falling property taxes. I guess it's just a crazy scenerio when muni's are seen as having significantly higher risk than corporate bonds (close to double right now). I have to wonder how much of that is from researched and factual information vs. gut feelings and emotion. Given how quickly it happened, I'm inclined to believe the latter. And if it's the result of a behavioral market decision, couldn't it be somewhat self fullfilling and more widespread than this simple example? It's got that run on the bank feel to it.

So many interesting aspects to all this that make me a little uncomfortable with political solutions. Obviously, I'm predisposed to being against bailouts and other interferences, I just don't feel like I'm necessarily against it right now. It's hard to know what the other side of the coin is, which is tough because I don't particularly trust politicians using this situation to improve their own standings and agendas. I watched Nancy Pelosi's press conference today. She was quick to preach bipartisanship in an attempt to reduce her parties risk of failure on this, but also quick to roll Republicans under the bus whenever she could. Hardly bipartisan, and reeked of the whole "let us save you" attitude one might expect 37 days before an election (if you honestly think that this is a result of anything other than decades of curious fiscal and monetary policy from both parties, then I have a bridge to sell. And since your HELOC is probably maxed, feel free to use that shiny new credit card you got in the mail.). And no, it's not just Pelsoi and her crew. I don't think any of us are comfortable giving another blank check with no oversight to the executive branch. I get that.

What I do know though, is that I'm not panicking. I'm not changing my asset allocation or my contributions. In every economic downturn, the populace has been told that "this time its different." There is some truth to that as each downturn is defined by unique circumstances. What's not different though is that each cycle has been the birthplace of the next boom. Sometime over the next year, the next great 'thing' will be created. Smart people start doing really genious things when faced with economic adversity, and we're due for some. Markets have a tendancy to "revert to the mean", and looking at logorithmic graphs of the s&p seems to suggest we're due for that reversion. Historically speaking, the correct play is to continue accumulating and rebalancing annually all the way to the other side of the cycle.

Very interested to see how the markets react this week. We've been trading sideways all year, will it be more or less the same even with the bailout plans? Will it fall down to 7 or 8 like it was supposedly going to do before the gub'ment stepped in, or will it soar back to 12-13? Should be educational no matter what.
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Stock Market Thoughts...

Jun 11th 2008 1:02PM | index, investing, oil, recession, stocks, vanguard

I'm starting to see infomercials for gold, people freaking out and talking about how much money they've made on oil futures, and things of that nature. All of the buzz is around materials and resources.

Seems to me that loose money went from the market, to real estate, to oil/gold/etc. Some are estimating that close to 30% of the cost of oil futures is related to speculation (talk about ultimately digging your own grave -- didn't we learn this from flipping houses already? I wonder how many of these investors are losing their 'profits' filling their SUVs up).

I've been reading a lot of finance books lately, and when it comes to investing they all say the same thing -- don't follow the crowds. The best buying time is when "blood is running through the streets." So, while it's tempting to chase the short term profits being made on these things, it all seems incredibly similar to the situations that I've read about.

Time to buy the Vanguard Total Stock Market Index. Automate that bad boy and ride this all the way down (and ultimately, out ;)

Anyone disagree? Lots of micro and macro things to consider these days.
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Recession Investing...

Jan 16th 2008 12:00AM | brainstorm, business, economics, economy, investing, politics, rant, recession, thoughts, unitedstates

I've been thinking a lot lately on various investments that would be able to handle the pending recession. There are the obvious answers (gold, basic materials, etc.), but I'm trying to round things out a bit.

It seems to me that when money is tight, people certainly cut back their spending, but the need for entertainment and pleasantry still exists. Cheap entertainment and thrills seem like a decent bet. Movies used to fall into this category I'd think, but that's just not the case anymore. I wonder if Netflix/blockbuster and other rental outlets would fit? Video games actually work out to be cheaper than most forms of entertainment, but they have such a high barrier to entry. Gamestop might be an answer to that, being that they sell a great deal of pre-owned (cheaper) games.

My sister pointed out makeup companies. That might sound a little funny, but truthfully if a $10 thing of lip gloss makes someone feel better, then it might match up perfectly. Never under estimate the feel good powers of vanity. That would suggest who, Proctor & Gamble?

Costco, BJ's, Walmart, Target, Dollar Tree, Big Lots -- big box stores and discount chains are a likely candidate. I started wondering about home depot. Normally, I'd say probably not, but given that much of this is caused by housing, maybe. People aren't going to be able to sell like they used to and will probably be planning on staying around a little longer. There might be a decent amount of home improvement going on, it's just whether or not that amount of home improvement is greater than the home improvement that was taking place during the housing boom. Probably not, but might be worth keeping an eye on.

Vacations are likely to be cut back on as well, but that doesn't mean families still won't try to go places and it doesn't mean that business will stop sending folks to different cities. Cheap destinations, discount travel outlets, discount airlines and discount hotel chains might be worth looking into (I think I'll pass on Spirit, though ;). When Kat and I were visiting family up in Ohio, we went to an indoor water park. I remember it as being a bit more pricey than I would have suspected, but I wouldn't be surprised if there were cheaper alternatives. It wasn't a water park like oh-my-god-a-water-park!, but more of an indoor pool with a bunch of neat slides attached to a hotel/destination type of place.

I've already been researching and following along with the alternative fuels world. I think given our economic situation, national politics and the general pulse of things, alternative energy will become even bigger in all this. A big part of our economic situation is oil. China isn't going to slow down their growth anytime soon, so oil demands aren't going to go down anytime soon. High oil creates higher inflation. The best way for us to reduce this added inflation may very well be alternative energy sources (combined with some clever Fed moves, of course). If the next president of the United States is a Democrat or one of the few Republicans pushing for massive energy reform, this sector will blow up.

Am I missing anything? Is my head in the right place or am I off base? I wasn't quite "investing age" during the last real recession we had, so I'm kinda basing this all off of logic. ;)
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