Friday, January 15, 2016

Mama Said There'd Be Days Like This

There'd be days like this my mama said. OK the damage has been done, unless you were smart enough (or lucky enough) to go all cash on Dec. 31st, we're essentially either in a Bear Market now or at the minimum on the cusp of one.

As a fellow financial farmer I wanted to share a couple thoughts, paramount being the most useless thing to dwell on after a market rout is cash you should have stashed away or what you could have bought with what you have now lost. The takeaways?

1) Even now, you probably have too much stock exposure and not enough cash; remedy that.

2) A covered call strategy probably would have cut your losses in half; dividends and selling covered calls both act to partially hedge your long positions.

3) Progressively buying into a dip doesn't always work; we've now had 8 closing "dips."

4) Leverage, especially buying on margin, can have disastrous consequences; a problem compounds itself with leverage.

5) In summation, the old adage "the market can remain irrational far longer than you can remain liquid" is and was a viable aphorism. As is "your first loss is your best loss."

My final thoughts for today as we head into a long weekend are as follows: Successful investors are OWNERS of their respective businesses, not just shareholders. By this I mean if you own shares of Facebook for example, you own a piece of a social network. Disney, you own an entertainment company. Exxon Mobil, you own an oil company with oil platforms, exploration, and refining. The mentality of those who wish to Invest Like a Farmer is clear: stocks are more than just ticker tape symbols with a price alongside of them, they are small pieces of viable enterprises.

These enterprises typically employ people, own physical goods, and produce some type of goods or services for a profit. They most likely did yesterday what they'll do today and also tomorrow. Keep that concept in mind amongst the flurry of media hype. Revenues rise and fall, some companies go out of business, and many new ones are started. The history of the US stock market, by-and-large, has been one of tremendous long-term success.