Christmas Day, 2008
I wish each and every one of you a happy and safe Holiday season!
I do so with the sad realization that for some that is easier than
for others. It’s been quite a year.
Few people are rejoicing at the results of their year, especially
investment-wise.
For those of us who have some profits from shorting the market and
financial stocks in particular, it’s hard to rejoice in the face
of the losses in other areas or the hardship brought about to so
many by the circumstances bringing our gain.
But as always there is little point in bemoaning the past when we
should be planning for our future.
InvestLetters.com is a focus on services that provide us with
investment advice which will hopefully enrich our portfolios.
Few publications I am aware of succeeded to any great degree at
that this year.
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Disclaimer:Let me note here that nothing in this missive is to be construed
as investment advice. I am NOT a registered investment advisor
of any kind. Please seek someone who is when making investment
decisions.
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(With the disclaimer out of the way, let me note that most, not
all, investment advisors are morons – in my HUMBLE opinion.)
Many experts are pulling out past issues of missives and waving
them in the air saying “I told you so”…
Some actually did. But of those, how many actually offered the
exact advice on how to profit from it? Of those, how many merely
reiterated their yearly advice and it FINALLY came true?
I have heard a few prognosticators predict something on the order
of what happened in 2008 for over a decade. If you had followed
their advice in 2008 you would have likely avoided some losses.
But if you had been following their advice for very long, you
probably would have either racked up serious losses in years before
or at minimum suffered what economists call “opportunity cost”;
ie, missing out on huge profits enjoyed by others.
Let’s look at some cases in point:
Currencies: This year was pretty good for being short the U.S.
dollar – up until July when the trade SHARPLY went against you.
Some of us have been short the dollar so long that even the
seemingly large gains, when taken over the time of the trade,
dwindle to mediocre returns. Chinese Renmimbi is probably a
poster child of this. And it didn’t suffer the effects of the
dollar rally July to December.
And while we are on the topic of the dollar, how about all of
those highly paid nincompoops (sp?) saying (once the dollar had
rallied significantly) that the dollar would now stay strong for
years? Following that advice would have cost you about 10% in the
last 6 weeks or so.
Those same nincompoops completely missed the profits of being
short the dollar in the first place, or the brief rally that
accompanied the financial meltdown.
Gold: If gold can close the year about $835 it will have a yearly
gain winning streak of 8 years. Pretty impressive. And for those
who got in at $280 in 2002 congratulations are in order.
But what if you got in back in the mid 1990′s at higher prices?
Sure, you have a double by now, but so would you have by investing
in CDs and money market funds – even though the last 10 years or
so have seen, at times, some pretty low returns.
And you would have lost no sleep.
When looking for financial advice, we have to understand that some
gurus finally got it right in 2008 only because they have had the
same message for 20 years and cicumstances finally matched their
predictions.
Others got it right in 2008, probaby surprising even themselves,
but they never gave any clear advice on how to profit from it.
Getting even a small part wrong this year could have easily
mounted enough losses to offset your gains.
Past is prologue, what do we do NOW?
- I hope you have sold enough losers to offset any gains
you might have had so as to avoid paying capital gains tax. - Throw away hope. Hope won’t make any stock return to the
prices of its former glory. Facts, and cash in the bank, rule the
day. - Determine your risk tolerance. Did you have sleepless nights
this past year because of your investment portfolio? If so, it’s
time to re-evaluate what types of investments you are getting into. - If you make New Year’s resolutions, resolve to identify the
mistakes of 2008 and resolve further to endeavor NOT to make them
again in 2009. - If you have been managing your investment portfolio without
a plan in the past, there is no better time than right now to start
operating WITH a plan.
Lessons learned.
For those still holding onto the mantra of buy and hold with the
phrase “it will come back” spewing forth from your lips, 2008 should
be bury that nonsense for good.
There is always a time to sell.
Remember what I said above about time; it may come back, but what’s
your overall return when that finally occurs? That’s where
opportunity cost comes in. Something else might serve your
portfolio much better. Find it.
In my review of the investment newsletters I have paid homage to
over the last year, one comes out a clear winner.
is one investment newsletter that did no flip flops, made no excuses,
and allowed stop loss orders to do their job of preserving capital.
I will admit that I believed some of the stops they recommended were
so low that:
a) the stock would never go that low
b) if it did go that low, it wouldn’t go lower
c) it would be painful to be sold out at that level
Guess what?
a) they did go that low
b) they continued lower thereafter
c) it would have been much less painful than the tax loss sales I
ended up taking
The Trend Letter doesn’t hold your hand, though. They give you the
advice you need and then they say no more until that advice changes.
You receive a monthly newsletter and as many flash reports as they
deem necessary depending on what’s going on. It is NOT a trading
service.
As their name implies, they identify a trend, look for the best way
to invest in it, then invest and wait for the facts to change.
It’s been good advice and I predict it will continue to prove itself
time after time.
I think you will find it one of the best newsletters out there.
Happy Holidays!
Roger.
