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How I'm weathering the storm and why I'm not too worried

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September 18, 2008 – Comments (18) | RELATED TICKERS: DD , GE , FPL.DL2

While the stock market has been absolutely brutal for the past several months, I have managed to stay fairly calm lately for two reasons.

1) I know that I am right and that my stocks will outperform over the next several years.

2) My wife and I welcomed our second son to the world on Monday.

Holding my son in my arms and spending more time with my first son while my wife is in the hospital is just want the doctor ordered right now.  While the entire financial world is melting down around me, I know that I have a wonderful, healthy family.  I am relatively young (though not as young as I used to be) and have a stable job.  As long as I don't panic and sell my stocks right now I will be fine. 

I have taken a number of actions over the past several months that have made it easier for me to hold on during this carnage.  They include:

1) Pairing back the number of stocks that I own to the ones that I know the best and am most confident in the prospects for.

2) DIVIDENDS!!!!  Just about all of the stocks that I own right now pay monster dividends...and not those holy toledo there's no way that this company will be able to maintain this dividend payment sort of divies.  Solid ones with low payout ratios.  Dupont pays 3.5%, GE pays 4.9%, an unmentionable oil stock pays around 16%, FPL pays 3.4%, EXC pays 3.0%, PM pays 4.4%...you get the idea.  Dividends help me hold on because I know that I get paid for waiting and riding this storm out.  Plus in many cases I am reinvesting them at bargain basement prices.  This is especially useful at a time when my family situation prevents me from adding much new money to the market.

3) Oil.  Oil's fall from near $150 to under $100 per barrel has been unbelievably painful.  I certainly hope that the price of oil doesn't fall much lower than $100, not just for the sake of my investments...but for the sake of the world.  Unreasonably low oil prices for an extended period of time would choke off investment in projects that need higher prices to be profitable, like deepwater drilling and  oil sands.  The lower oil falls, the higher it is going to spike when people figure out that demand is far outstripping supply.

In my opinion, the main reason why oil has been so weak lately is the liquidation of positions by hedge funds and investment banks that have been forced to sell anything and everything to remain solvent and the strength of the U.S. dollar.  Increasing worries about the global economy play a part, but not nearly as large a one as those other reasons. 

The price action that we have been seeing has absolutely nothing to do with the fundamentals for oil.  U.S. oil stock is below average.  The U.S. gasoline inventory is at a historically low level.  A ton of supply in the Gulf of Mexico was knocked off-line by Ike.  Russia is a mess and might not be able to get the foreign capital it needs to increase oil production.  OPEC will act to put a floor under the price of oil if it falls too far.  Production is still falling in many major oil producing countries like Mexico.  I could go on and on.

The dollar strength that we have seen over the past several months is completely irrational and is bound to change.  The only argument that dollar bulls have been able to make is that the economies of other countries is just as messed up as the U.S. economy is.  Ignoring the fact that this is hardly a reason to be bullish on a currency, I completely disagree with this statement.  Not only is the U.S. economy at least as bad, if not much worse than the ROW, but we have a government and a Federal Reserve that is much more willing to print money to prevent massive deflation.  Bernanke, for all of his faults, is an expert on the Great Depression and I am 100% positive that he will do everything in his power to flood the country with money to prevent a repeat of it.  His background leads me to believe that he would much rather see massive inflation than massive deflation.

Whew, I had some pent-up blogging in me huh?  I think that I could go on for pages and pages, but unfortunately that's all the time that I have for now.  I'm off to the hospital to visit my family...the reason why I work as hard as I do. 

Thanks for reading CAPS friends.  Talk to you soon.

Deej 

18 Comments – Post Your Own

#1) On September 18, 2008 at 7:30 AM, devoish (98.36) wrote:

Congrats. Babys are the best.

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#2) On September 18, 2008 at 7:37 AM, TMFDeej (99.41) wrote:

Thanks devoish.

Deej 

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#3) On September 18, 2008 at 7:55 AM, carstenjansing (86.37) wrote:

gratulation on your baby ....

 

and on your fierce stormface ;), we ll get em....

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#4) On September 18, 2008 at 9:09 AM, VTEngineer2001 (< 20) wrote:

Congrats on the baby. My wife is due mid December with our first - a girl.

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#5) On September 18, 2008 at 9:21 AM, mandrake66 (86.32) wrote:

Congrats Deej.

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#6) On September 18, 2008 at 10:06 AM, tomnsung (83.35) wrote:

Congrats on the birth of your second son; glad to hear that your family is doing well!

However, beware of believing #1 "I know that I am right". I recall that in 1982, there was a market advisor, Joe Granville, that took his followers to the poor house by believing he was right in advising them to sell all stocks during a powerful bull mkt. Joe had a preconceived notion of what was going to happen and ignored evidence to the contrary. We all should learn by our own mistakes and those of others. And I have made plenty. Stay tuned to the mkt. and what is affecting it, because things do change, and our preconceptions sometimes need to be changed.     Tom

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#7) On September 18, 2008 at 10:56 AM, kdakota630 (29.56) wrote:

Congratulations, Deej!

I know the feeling you're experiencing.  The proudest day of my life was the day my first baby (a boy) was born, and have been blessed twice more since then (which was only a little more than 3 years ago).

Keep the kids in mind when making your picks (you're doing it for them) and keep up the great blogs.

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#8) On September 18, 2008 at 11:12 AM, anchak (99.84) wrote:

Congrats Deej!

 

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#9) On September 18, 2008 at 11:43 AM, amoldov (31.16) wrote:

Enjoy the new addition to your family, I hope it brings you much hapiness in the years to come.

Perhaps there could be a blog on 529 plans, Coverdell or any instruments or choices for setting money aside for college (or bail?). I have two of them as well. What you need now is a pistol and a whip, to keep things under control and order in the house.

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#10) On September 18, 2008 at 11:52 AM, columbia1 wrote:

Congrats, Deej, hope all is going well, with mom and baby coming home soon!! (what a time the get G.E. @ 23-24 for  college)

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#11) On September 18, 2008 at 3:20 PM, DemonDoug (71.43) wrote:

congrats from me to your family too deej, but i will again caution and warn you and everyone else.

Imagine if Siemens (SI) owned Washington Mutual and CBS and all that broadcasting stuff.  This is basically what GE is.  I'm not saying they will be dragged down to zero, but there is significant risk that GE will need to cut it's dividend and may end up in the teens or below when all is said and done.

Seriously folks, if Siemens was a 100% owner of Wamu, would you be bullish on it?

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#12) On September 18, 2008 at 3:58 PM, TMFDeej (99.41) wrote:

Thanks everyone.  I understand your trepidation with GE, Doug.  My position in it is still very small compared to the rest of my holdings, around one third of a "full position" and about 1/100 the size of my oil position.  This company has some unbelievable businesses and it stands to profit handsomely if it can weather this storm...which I still believe it can.

Deej

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#13) On September 18, 2008 at 7:29 PM, dwot (49.06) wrote:

Congrats on the new baby.

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#14) On September 18, 2008 at 7:49 PM, floridabuilder2 (99.26) wrote:

congrats Deej glad to hear others who have a rational perspective....  I'm in the dollar bull camp... if Obama gets elected at some point I will be a dollar bear...  I trust him about as much as Putin... as far McCain...  I don't even think he knows he is running for President.. no detailed policy statements.. so who knows what happens...  I know you don't like the Dollar bull argument, but never fight the trend.. if major hedge funds, traders, etc.. think the dollar is a bull... it becomes a self fulfilling prophecy until there is some other irrational bullish trade

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#15) On September 19, 2008 at 1:53 AM, Tastylunch (29.28) wrote:

Congrats on Deej the Third's arrival!

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#16) On September 19, 2008 at 7:32 AM, TMFDeej (99.41) wrote:

Thanks again for reading and for the congratulations everyone. 

I see your point that the trend is your friend with the U.S. dollar at the moment, Florida.  Fortunately, I am not trading currencies and I would never purchase a stock solely on the basis that a weak dollar would benefit it.  The fact that the dollar will ultimately retest its lows would provide a nice boost to some of the companies that I have invested in though.

Deej 

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#17) On September 19, 2008 at 7:33 AM, TMFDeej (99.41) wrote:

Thanks again for reading and for the congratulations everyone. 

I see your point that the trend is your friend with the U.S. dollar at the moment, Florida.  Fortunately, I am not trading currencies and I would never purchase a stock solely on the basis that a weak dollar would benefit it.  The fact that the dollar will ultimately retest its lows would provide a nice boost to some of the companies that I have invested in though.

Deej

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#18) On September 19, 2008 at 7:34 AM, TMFDeej (99.41) wrote:

Thanks Tasty.  It's only number 2 :).  That's it for me.

Deej 

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