Become a Better Investor – Join The Church of What’s Happening Now

Last year a good client of mine referred a recent retiree to me and after an hour spent with her I made up my mind this was someone I could not and would not have as a client. Yes, adorable- mild –mannered- good- natured- even tempered me couldn’t stomach  adding  another layer of grief into his life. I had my absolute fill what with my crummy golf game and the erratic 2010 stock market without inviting on purpose a new headache into the house.

Don’t get me wrong, this was no evil ogre I was referred to but…and there always is that but…her investment views were based on talk radio fundamentals and office gossip theories. And she was stuck on them. They were her gospel and bible. As she trotted out the Glen Beck Theories of Far-Right Wing-Nut ‘Lets Build A Bomb Shelter’ Money Management Theories Let The Banks and Auto Companies Eat Dirt’ I was tempted to open my left carotid with a teaspoon and end it all then and there. It got worse. She even had a list. Her demands included to be notified anytime an ‘IPO’ stock became available, trade her investments using only triple leveraged exchange  traded funds and to design and implement her retirement account into the most aggressive areas and for free. The free part I got. The reason for ETFs was that someone told her that was how to get rich. She had no idea what an ETF was or if it came from outer space; but, someone told her it was the only way to get rich and so she glommed onto it.

Those were my marching orders, or for any broker silly enough to take her account, and there was no wink-wink nudge-nudge as if to say, I know this is ridiculous and don’t take me serious.  I gasped, no thank you, very much, and hyperventilated my goodbye. As I staggered away from our meeting I thought I heard her say something behind my back about being a ‘cracked pot.’

Her investment attitude in 2010 was a mixture of fable and 90s greed and had nothing to do with what was happening in the economy or the market at that time.

This memory synapse comes because of a recent WSJ article that reported how today – now- this minute- a great many Baby-Boomers have left the stock market for certificates of deposit, bonds and fixed single premium annuities. While the lady I met was willing to jump into a risk pool of economic foolhardiness there were many others who were on the flip side of the coin and had enough of the market silliness and were into the preservation of their principal. In the short run they had eliminated any economic grief from their lives. At some point when their income gets strained, the inflation factor gets to double digits and people start mortgaging cars on 15 year payment plans, they’ll wonder if they made a huge mistake. It may be too late. But, I bet in a few years I’ll still run into one or two Boomers who’ll grab me by my tee-shirt lapel and demand why I didn’t try and talk them out of putting all their money into that Mason jar they had buried under their front stoop.  You may even know one or two yourselves.

Not everyone had the capacity to handle investing in the 2010 stock market. It took a special person(s) to move forward  that year with some measure of confidence, especially with the kind of an investment decade in equities we’ve had. It did take a certain educated and far sighted soul to see that a great many stocks were trading at PEs not seen in decades and with yields that would make Croesus green with envy and hold through the course of the market gyrations. Imagine in 2010 oil companies trading at PEs of 10 with yields of 3%-6% or telecom stocks about 15% off their highs and yields approaching 7%. Now see where those shares are.

That was then and this is now. Stocks have moved substantially up – about 28% since The Ben Bernanke started his QE2. Now the question is what should investors do as we seem to have gotten a leg up and over the first hurdle of economic wellness.

Flip Wilson may not have invented the Church of What’s Happening Now in his comedic routine but he made us all aware of it. As investors we all need to understand what is happening in the economic world currently and use it to our advantage rather than chase what once was.

You can’t turn the clock back any more than you can buy investment grade rated bonds at discount.

There will be more surprises from sources we cannot imagine as we move through 2011 but if we keep our heads and accept change we should do just fine.

Here’s a few ideas going forward if you want to be part of the congregation of What’s Happening Now:

• Review what you own and sell your dogs and keep your potential and past winners.
• This may be the last year when you can sell your mutual funds and still take a loss. Check your cost basis (see my blog in March).
• Make a list of what you would like to own.
• Whittle the list down to best of breed.
• Buy on dips. If you like a stock make an offer and see if it comes to match your price. Surprising 2010 did a lot of that.
• Look to protect your investments from inflation.  Add commodity funds, diverse energy, material funds and maybe a smidge in a contrarian Japan play. 
• The old growth-income, income-growth funds may not be the best way for you to grow old gracefully.  Don’t eliminate them but let’s not get silly by overloading the portfolio with them.
• Sneak a peek at what’s going to happen tomorrow and add a bit of tech into your portfolio mix. Tech ain’t the old 2000 market tech but cash rich players like Cisco, Intel, Apple, Google, IBM and HP. Innovation will likely come from this sector.
• Emerging markets are not dead contrary to their recent pullback but the play is now concentrating on consumer goods. As the Chinese, Indians and Brazilians gain income the bet is they’ll be buying more from local industries.
• Start thinking of alternatives for those bond funds you’ve been holding. Some fund managers are eliminating US, German and Japanese bonds as they expect turmoil in those countries. Take a lesson. Some managers like Bill Gross of PIMCO love emerging market debt.
• Grow your thinking and your investment portfolio with what’s happening now and not yesterday.

Need help call me.

If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about money.