No. of Recommendations: 9
Sadly, mz dumbest investment is probably still to come

Now that I’ve become a seasoned investor – what’s next?

Looks like after you are sufficiently seasoned, you just get cooked!

I like to think I have been a prudent investor following these kind of rules:

Don’t invest money you can’t invest for the long haul
Buy into solid businesses and hold for the long term
Diversify your portfolio across industries and countries
Invest in a mix of small, mid, and large cap companies
Don’t try to time the market – invest regularly
Look for solid sustainable dividends and reinvest in the market

When the market headed down, I looked for bargains in beaten down companies, and began to feel the smug satisfaction of the “seasoned” investor.

And now I’m getting well and truly cooked.

Companies with sterling quality mortgage portfolios are being squeezed by margin calls and forced to unload good assets at a discount.

Liquidity disconnects are causing some companies to reduce or suspend dividends.

High oil prices are pushing economic growth down and driving the dollar down. All of which causes money to flee the US markets and push oil higher which then further pushes the dollar down.

They used to say when the US Economy catches a cold the rest of the world catches pneumonia. Well - the world economy has expanded over the last decades, but when the US economy catches cold, everybody still gets at least a cold.

Can I take comfort in the fact that Eddie Lampert lost more on bank stocks this year than I did? No. I lost money and he lost money. He was richer than me last year and he will be richer than me next year.

I have learned a lot of Wall Street jargon in the meantime: “Dead Cat Bounce”, “Catching a falling knife”, and “air pocket stock” to name a few.

So I had some stocks that did well, most followed the market down, and some dived to new lows and are flirting with bankruptcy. My international portfolio held up well against the dollar but the European, Latin, and Asian exchanges have tumbled too. I have a pretty large position in energy and commodity related businesses, but funds holding similar positions have had to take some profits out of high flying positions to address liquidity shortfalls somewhere else in their portfolio. It’s always something.

A diversified portfolio just means I lost money in everything: house value, my stock market account, my 401K. Just on paper of course. Its funny though, when my portfolio was up 20% year on year, I never thought of it as just paper.

So all in all, I am not beating the Market. I stayed about even with the Market, which is underwater now, which is to say – I’m taking a bath.

What have I learned, and what do I do now?
I am seasoned, but certainly not smug about it any more.

Is it the end of the world as we know it?
Well – what if it was? If the stock market crashes, the dollar becomes worthless, and international trade grinds to a halt – what will you do? If you really do worry about it, then buy some gold, stock the basement with food, and drill a water well with a windmill or a hand pump. Ohh – and better get some guns and bullets too.

I’ve decided not to worry about the doomsday scenario.

Unemployment is pretty low, Interest rates are not very high, the world’s GDP output is still growing. Stock valuations on a P/E basis are not unreasonably or historically high.

Money has been a little too cheap – and it’s pretty normal that people rack up more debt and risk a bit more in the housing market when money is too cheap.

Financial institutions securitized mortgages and other obligations into bundles which appeared to minimize risk by spreading the risk. So now risk is spread everywhere you look.

You can think of it as a rain storm. When the market is hot, big pools of risk evaporate and there are big fluffy clouds of risk floating in the warm blue skies of the market. As this warm front hits a rise in interest rates which causes a cooling housing market, it started to rain. In some areas there is flooding.

The fed’s flood control systems are limited and don’t stop the rain. We need a warm front; a rising barometer of investor confidence.

I don’t think it will rain forever, but I am going to listen to weather forecasts and I will use an umbrella.

I will “time” the market and pull back my exposure even if it means I take some paper losses. Even great businesses get hammered by market sentiment. I may miss some upside when I try to minimize downside, but cash in hand is a nice consolation. Cash which I can invest when the climate is right.

I will be concerned about the weak dollar. We need foreign investors to put their money in to the US markets. We need national wealth funds filled with petro-dollars to reinvest in US financial instruments.

I will continue to invest, but not in any weather and not in every season.

People who praise Buffett lavishly still were advising the little guy to be fully into the market. Warren was sitting on $10 billion in cash and publicly saying that he did not see many bargains out there. Was he timing the Market?

I lost money on A rated big caps and made money on F rated small caps
And vice-versa. You can’t win just chanting the standard mantras of investing.

I will look closer at the risks each business carries. The nature of the risk, the size of the risk, and the risk that the risk will actually come about, and the risk that the perception of that company’s risk will change.

Will I stop being a fool?

Well - I probably just this year became a true fool, with my very own jester’s hat and rueful smile. And so I look forward further education, amusement, and enrichment.
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