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Eight Things the Plunge Means for Your Money
Absent from the list is the only one that matters.
Your money is now worth more.
Now you know why I love investing in boring blue-chip stocks. The duller, the better.
Was there a powerful rally in boring blue-chip stocks today that I somehow missed?
Not only are many of them priced pretty reasonably right now: They let you sleep better, too.
Sleep better? Seriously? I'm fairly sure that even a quad shot of espresso would be a more effective sedative.
Be honest: When you heard about the Dow or saw the footage from Athens, your thoughts immediately went to that exciting new "aggressive" fund your broker just sold you.
I can say with 100% honesty that my first thoughts did not go to that exciting "aggressive" fund my broker just sold me. I merely sighed. I figured even more money would flood into my TIPS and it would be even harder to safely make money off of money in the future. My thoughts then turned to what might happen next if this continued. At some point money would flow back out of TIPS as deflationary fears rose. It wouldn't be the first time.
Did you really worry about your Kellogg stock?
I would have worried about Kellogg stock had I owned it. The last time stocks crashed in a major way Kellogg fell right along with them. On September 26, 2008 Kellogg stock closed at $57.39. On March 11, 2009 Kellogg closed at $35.84. That's a 38% loss. Believe it or not, that is the kind of thing I tend to worry about. Call it a crazy "falling tide sinks all ships" sort of mindset.
At today's 0.1% interest rate on three month T-Bills, a loss of that magnitude would take roughly five centuries to earn back safely even if one ignored inflation. I just don't have that kind of time on my side.
Let's say we had a time machine that could transport us back to December 12, 2007 and get some advice from this very same author. What might he have said then to comfort us during that plunge?
December 12, 2007
ROI: Time to Consider Buying Banks?
The latest move from the central banks, which is aimed at addressing that specific issue, is probably more important than the interest rate cuts. The market's reaction to the two events – a plunge after yesterday's rate cut followed by a rally in response to the liquidity plan – certainly supports that.
So how should an investor react?
Make your own call – but at least look at the big banking stocks.
Citigroup closed at $31.47 that day.
The charts certainly tell a story. It's hard to avoid the conclusion that the banks are either going to hell in a handcart, or they are going dirt cheap.
Using hindsight we can now determine the winner. As can be seen in the link, the readers of this blog were generally not surprised by the sudden appearance of a handcart in a sea of fiery magma.
Citigroup closed today at $4.04. That's an 87% loss from its bargain levels.
Behold the power of investment hell. Sleep tight!
Source Data:
Yahoo: Kellogg Historical Prices
Yahoo: Citigroup Historical Prices
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
8 comments:
I believe it was earlier in the week, when you wrote that post on DOW hitting 1200 with corresponding dates, I said that would be a screaming sell signal to me. But then I'm not a computer, so what do I know?
Yeah, dull boring blue chips, that is the way to go. The duller, the better. Sound fundamentals, safety of principal, adequacy of return. It's called intelligent investing.
GawainsGhost,
Hostess Brands
Hostess Brands, Inc.(formerly Interstate Bakeries Corporation(IBC)) is the largest wholesale baker and distributor of fresh bakery products in the United States, and is the owner of the Hostess, Wonder Bread, Nature's Pride, Dolly Madison, Butternut Breads, and Drake's brands.
Boring. Dull. Founded in 1930. Survived The Great Depression but went bankrupt in 2004.
Right or wrong, I have no interest in owning any stocks in this environment. As of 2004, I'm done. We borrowed $1.6 trillion in 2009 to keep this party going and I'm just not a believer.
Hmmm. Hostess Brands, that is interesting. Coca-Cola is still around though.
I don't blame you for not wanting to invest in stocks in this environment. I don't either. I am 100% cash.
The market is rigged. And without substantial and meaningful regulatory reform, it's a sucker's play.
That said, there are some good companies out there. The problem is that it is impossible for a retail investor to buy into them.
If I were so inclined, and I'm not, I would be looking into guns, ammo, whiskey, cigarettes, and Purina pet food. There is almost deprivation most people will not go through to feed their cats.
GawainsGhost,
I hear you.
Regarding Coca-Cola, my state has just decided to tax it. I'll be drinking less. Go figure.
I owned a .22 rifle in my youth. Went many years without owning a weapon, but bought a 1911 handgun in 2004 just in case. It sits in a safe in my garage. I hope it can stay there. If crime picks up at some point, it will move to my nightstand though. In any event, there's a gun range just up the street from my house. It is fun to shoot.
In the meantime, I have door jammers and a dog with a loud bark. I'm also one of the few who actually locks the gates to my back yard. Deterrence is the best defense.
Well, the thing about companies like Coca-Cola and McDonald's and the like is that they do the majority of their sales overseas.
However, in this global economic environment, there is some question as to how long that will continue.
I think there is going to be a major disruption world wide in the near future. I can only hope it doesn't lead to all out war and massive destruction. But it's not like that hasn't happened before.
The Baby Boomers, what with their sense of entitlement and their pretense to superiority. Just look at what a mess they've made of things.
By the way, technically I am a Baby Boomer, but I don't consider myself one. Born in 1961, I consider myself a member of the Lost Generation. We were the first kids raised on television. Fortunately for me though, my father severely limited my television viewing. He made me read books!
GawainsGhost,
The Baby Boomers, what with their sense of entitlement and their pretense to superiority. Just look at what a mess they've made of things.
Indeed. I was born in 1964. I'm a baby boomer too. It's been a great era to watch shoes drop.
I keep coca cola sales up by my diet coke addiction alone. That is a bullet proof stock to me!
GYSC,
As seen on the Internet...
A sweet young thing gets to a soft drink machine just ahead of a businessman who wants to quench his thirst.
She opens her purse and puts in 50 cents, studies the buttons for a short time, pushes a Diet Coke selection and out comes a Diet Coke. She puts it on the counter by the machine.
Then she reaches into her purse again, takes out a dollar and inserts it in the machine. She examines the buttons carefully, then pushes the button for Coke Classic. Out comes a Coke Classic and 50 cents change.
She immediately takes the change and puts it in the machine, studies the buttons for a moment and pushes the Mountain Dew button. Out pops a Mountain Dew.
As she is reaching into her purse again, the thirsty businessman says, "Excuse me, miss, but are you putting more money in?"
She looks at him and replies indignantly, "Well, duhhh. I'm still winning."
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