How I'm weathering the storm and why I'm not too worried
September 18, 2008
– Comments (18) |
RELATED TICKERS: DD
, GE
, FPL
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
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