YOUR INVOLVEMENT 2008Last entry: 1.25.08
Knowledge is important
Your investing strategy needs to be based on putting all the pieces together from sources beyond the financial media and Wall Street hype. We will try to assist but a long-term viewpoint that involves many factors is key. Capitalism is about creating value, selling when you see overvalue and buying when you see undervalue. Buy and Hold is a great long term approach, but has difficulties when the long cycles decline. Bottom line, a BEAR MARKET can be beneficial to your portfolio performance because it creates periods of undervalue that can be captured if you sell during the overvalued periods.
Difficulty in Putting Together Your Plan
It is difficult for individuals whether or not they are investors, to put together a plan because the Administration, i.e. Treasury Department, and the FED keep giving out mixed messages that do not wash in the real world. Treasury Secretary Paulson says this Administration has a strong dollar policy, yet the dollar has gone down 30 percent since 2001 and 10 percent since Paulson came in office mid-2006. The FED says it is fighting inflation, yet we see all this asset based inflation over the past six years, whether it is gold, commodities, or real-estate. How can we as Americans cope with this double talk? This next election may end some of that, but Americans may vote in another double-talker, maybe they like double-talk…it puts everyone into “a comfortable I don’t have to make a decision mode”.
The Average American
While there is no way to know, we assume that many of the visitors to this site are average Americans with incomes less than $ 100,000. Some 85 percent of Americans are in this category and they in total own less than 15 percent of the total value of the stock market (see the Political Talk section of this site for more in-depth evaluation of this phenomenon). What we say about the market is important but the question we get is: how do I protect myself, how do I get defensive when my stock investments are a small part of my total asset base? The answers are difficult but can be arrayed in order as follows:
The last major economic crisis in this country was in the 1930’s. From our reading of the situation two areas stand out as major dangers, being overleveraged, and losing your job.
The first area would appear to be best handled by selling down to a minimum 30 percent equity / 70 percent debt level total on all assets, including house, business, etc. Declining markets are hard to sell into, probably best just to hit the bids.
Don’t follow the Washington line of buying a new SUV to help out the economy. Buy what you need. It is true that we are 70 percent a consumer economy and businesses need buyers. Be prudent.
Your job is the real difficult part. In many ways you have little control. Work hard and make yourself invaluable is probably the best course.
And lastly, Government will get involved at some point in a meaningful way, not by giveaways, but by building our country back to its former greatness through infrastructure and green energy projects.