TURN AROUND AND RUN LIKE HELL

A New Investment Strategy? Turn Around And Run Like Hell is the title of a book I received as a Christmas gift. It is actually, a compilation of war time battle strategies, not a book on how to cope with the recent market distress. You can go back to my post of May 15 entitled, Beware The Receding Tide, as proof that the current market situation is not a huge surprise to us. You can also look at my post of July 15 which makes the point that excess liquidity in the marketplace is causing investors to make some really stupid decisions. So if I anticipated the current correction, why didn't I sell everything and put everyone in cash to preserve capital to invest in anticipation of a turnaround when things change? The answer is that I wasn't positive that a downturn was coming, I didn't know when it would arrive, and I didn't know which sectors would suffer the worst. What we did was raise some cash by accumulating instead of re-investing dividends and selling those stocks that we felt were overvalued. We continue to follow these strategies. If we had known that the correction would begin this fall and that it would involve mostly financial stocks, we would have "turned around and ran like hell." We didn't and now it looks as if totally selling out at this point would result in giving up a lot of upside potential, which appears to us to outweigh the downside risk. For one thing, we continue to collect rich dividends, and for another we believe that a rebound in share prices has more potential than a significant decline. Selling out at market bottoms is exactly this strategy that causes the average investor to miss out on market rebounds.

So What Is Our Prediction For the Future? Short-term it appears that the mortgage and housing industries are a year or so away from a rebound. Financial stocks will remain out of favor and the good will suffer along with the bad. Our current portfolio of high-dividend stocks will languish; however, as more people realize that cash flow and intrinsic value are more important than the market perception of value, we should see a rebound in market prices. My investment strategy will be to keep an eye out for reasons that we might change what we are doing; however, it is highly unlikely that we will be tempted to "Turn Around and Run Like Hell.