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Greece: The Questions Investors Should be Asking

Will Greece default, or won’t she?  This seems to be the question on every investor’s lips, and the uncertainty surrounding the outcome has the markets on edge.

I have no inside information about how this crisis will be resolved, and even if I had the phones of every European leader bugged I’m not sure the information gleaned would be particularly useful right now.  The EU leaders tasked with resolving this crisis seem to have no more of a grasp on the situation than those of us on the outside.

No one said that investing is easy or that it should be easy.  Investing is an exercise in making difficult decisions under conditions of uncertainty.  If we knew the future ahead of time, there would be no risk and thus no possibility for return.

The questions investors should be asking is not “What will Greece do?” but rather “How will my portfolio perform regardless of what happens in Greece?” and “Am I being properly compensated for the risk I’m taking?”

We’ll answer that question shortly, but readers should first understand a very important point:

read more There are two—and only two—risks that we as investors face every day:

  1. The risk of being in an investment that falls in value
  2. The risk of being out of an investment that rises in value

We tend to focus on the first type of risk, and it appears that we are hardwired to do so.  In their landmark 1979 study, psychologists Daniel Kahneman and Amos Tversky found that people dislike losses 2.5 times more than they like comparable gains, and that most will actually engage in risk-seeking behavior in order to avoid realizing a loss.

Yet the second type of risk—opportunity cost—can be equally damaging to your long-term financial health.  If you pile into “safe havens” like cash or Treasuries that yield next to nothing, your standard of living is almost guaranteed to fall over time.

A good investment strategy should balance these two risks, offering decent upside potential while keeping risk to a tolerable minimum.  Given the pricing in today’s market, this is actually easier to do today than at any time in recent memory.  As I wrote in the last post, at current prices I like “boring” blue chips that you know will survive anything like the “Wintel” duo of Microsoft (MSFT) and Intel (INTC)—see “The Ugly Sister.” I also like consumer products maker Procter & Gamble (PG) and healthcare giants like Johnson & Johnson (JNJ). If we have another 2008-caliber meltdown, these companies will survive it intact and will continue to pay solid (and likely growing) dividends throughout. And if we avoid a meltdown, they should at least match the broader market’s upside. Companies like these would seem to give you the best risk / return tradeoff given the unknowns we face.

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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Embrace Your Inner Spock: Three Questions Investors Should be Asking

Congratulations, you’ve just lived through the sixth-worst day in the history of the U.S. stock market. The Dow Industrials fell 634 points on Monday in response to Standard & Poor’s downgrade of the United States’ credit rating, and two days later the volatility continues.

After a day like that, it’s important to step back and get a little perspective. When you see the world around you crashing down, it’s natural to panic. But ask yourself the following questions:

  1. If the United States is now a bad credit, then why did bond investors run to Treasuries as the market was selling off? The yield on the 10-year Treasury note is now near all-time lows. This suggests that bond holders are not the least bit worried about getting their money back. If bond investors aren’t worried, then why are you?
  2. Why is it that Warren Buffett — the most successful investor in history — brushed off the S&P debt announcement and considers stocks to be attractively priced?
  3. And how are stocks “risky” when some of the biggest and most widely-held names — such as Sizemore Investment Letter recommendations Intel (INTC), Microsoft (MSFT), Johnson & Johnson (JNJ), Procter & Gamble (PG), Altria (MO), Philip Morris International (PM), Diageo (DEO), and Unilever (UL), to name a few — now pay out more in dividend yield than the 10-year Treasury does in interest?

When you do your homework and you choose your investments well, you don’t have to worry at times like these. In fact, if you have extra cash at your disposal, you use them as a buying opportunity. That’s what the all-time great investors do.

Long-time readers have no doubt heard me mention the name Albert Meyer, who manages the https://roundhouseaquarium.org/classes-and-field-trips/roundhouse-field-trips/ order cheap viagra online canadian pharmacy Mirzam Capital Appreciation Fund (MIRZX). I consider him one of the sharpest accounting minds in the business. I’m also not entirely convinced that he’s human; I suspect that he is a refugee from planet Vulcan, home of Star Trek’s Spock.

Meyer has that certain personality quirk that tends to be prevalent in successful value investors: order cheap generic viagra A total lack of emotion when it comes to the investment process. He dissects a company’s financial statements with the detachment of a surgeon in the operating room. When he determines that a company is a bargain, he buys it; if he determines that a company is expensive, or if he finds its accounting practices questionable, he avoids it, no matter how popular it is.

He also has a second personality quirk that is common to virtually all successful value investors: An ability to tune out the constant stream of noise coming from the media. Meyer, like me, reads the Financial Times religiously. But unlike me, who compulsively has to read it every morning with my coffee, Meyer reads a weeks’ worth of newspapers at once, usually on a Saturday when the market is closed. Oh, and he doesn’t own a TV. (“It’s mostly all rubbish, anyway,” is his rationale, spoken in his professorial South African accent. He’s correct on that count.)

Right now, I’m going to recommend that we play it cool like Meyer. If you are comfortable with what you own — and I most certainly am — then don’t let a wave of hysteria over a meaningless credit downgrade cloud your judgment. You sell when your reasons for owning an investment no longer hold true, not because of a volatile fear-based decline. Continue to collect the dividend checks and add to your positions as your funds allow. You’ll sleep better at night. And when the dust settles, you’re likely to walk away from all of this a lot richer.

Charles Lewis Sizemore, CFA

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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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3 Myths That Will Pop the Gold Bubble

Gold prices topped $1,500 per ounce yesterday, just days after Standard & Poor’s roiled the equity and bond markets by lowering its outlook on the AAA credit rating of the U.S. government. After a decade in which stocks went nowhere and the U.S. dollar lost value to every world currency except the Zimbabwean dollar, many Americans are ready to give up on the entire system. Quite a few already have.

After watching gold more than quadruple in value, investors might be tempted to wash their hands of financial assets altogether, convert their savings to gold bars, and bury it in their backyards. But frankly, I cannot fathom a worse idea.

Gold today is as risky as tech stock in 1999 and Miami condos in 2005, and the arguments supporting its rise are every bit as flimsy. Let’s take a look at some of these arguments and how they stand up to a brief reality check.
Continue Reading →

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Gold: A Bad Investment and Getting Worse

If there is one asset class best avoided in 2011, it’s gold. At the expense of sounding overly dramatic, gold is an investment whose fundamentals are rotting from within, and you do not want to be anywhere near it when the bottom falls out.

In late November, I wrote a short piece for Seeking Alpha in which I added a few more jabs at the barbarous relic. For my efforts, I received over 200 comments, most of which were hate mail.

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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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There is NOT a Bond Bubble — at Least Not Yet

I’m going to start this month with a prediction that might surprise you. I do not think that bonds are in imminent danger of a crash.

I do agree with the growing legion of investors—including the legendary Warren Buffett himself—who believe that the bond market is in a “bubble” of sorts. And I would certainly agree that at current yields, bonds have much greater downside potential than upside, making them quite risky. Nominal bond yields can’t fall below zero, after all, but they can rise significantly from here.

That said, I think this bubble might have a little longer to run, and this is good news for us. Even though we have no exposure to bonds in the Sizemore Investment Letter, we benefit from low yields as they make our income-oriented investments more attractive by comparison. Of course, I would expect the SIL’s recommendations to do at least relatively well in almost any interest rate environment, as most pay dividends that are both high and growing. Still, all else equal, I am quite happy to see rates stay low, and I think it is highly likely that they will.

Here’s why: Bubbles practically never crash when they are widely expected to. And right now, if there is one consensus in the world of investing, it is that the bond bull market is over. Take a look at the chart below. Fully 95% of money managers interviewed by Barron’s are either bearish or neutral on Treasuries! Continue Reading →

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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