Here’s what I wrote in the 2005 revision of my book. (Because of lead times, it was actually written in early November, 2004, right after the election.)
I am dismayed by the reelection of George Bush. Yes, my taxes are likely to stay low, but I don’t see how we become more prosperous if much of the world hates us . . . if we are adding to our national debt at a tremendous rate . . . if we are investing in missile systems instead of education . . . if we are giving tax incentives to encourage the purchase of Hummers rather than fuel-efficient vehicles. And that just begins the list.
Under either Bush or Kerry, we would have faced challenges: Terrorism, which even when it doesn’t strike costs us dearly (security guards make us safer but they do not make us richer). Globalization, which will make the whole world more prosperous in the long run, including us, but which threatens our manufacturing base and puts high-wage jobs at risk of being teleported abroad. And more. (The likelihood of high energy prices for a very long time could be another.)
But under Bush, I see the problems just getting worse, not better.
So maybe yesterday around 1pm was the bottom. It represented a 10% ‘correction’ from 14,000 on the Dow; 20% and more on a lot of less stodgy stocks.
In Euro terms – stocks are cheaper still, as the dollar is so much less valuable than it was six years ago.
But I fear we may not have seen the bottom, and that the bad news could be reinforcing, depressing both prices and economic growth.
It’s generally a bad idea to try to ‘time the market.’ But as always, if you have money in the market you can’t afford to risk, it shouldn’t be there. Sell. And if you’d be one of those people who, if the market kept dropping and dropping, would finally throw in the towel and sell just when, with hindsight, it will turn out you should have been buying – you shouldn’t be in the market either. You should sell, too.
If, on the other hand, you’re in it for the long haul – perhaps in domestic and international index funds, with a few interesting speculations on the side to keep it interesting (and to give you tax control, selling your losers to lower your taxable income by $3,000 a year and gifting some of your long-term winners to fund your charitable giving) – then, well, you are in it for the long haul. Hang tight. And if you have the income to buy more shares every year – dollar cost averaging – you should be pleased when stocks decline. The bigger the bargains, the more shares you can buy.
My retirement plan is about half in cash, but I’ve not, by and large, sold any of the stocks I’ve been writing about here (at least none I can think of) and yesterday I bought more AII warrants at $1.05, down from $1.40 (with a standing order to buy yet more at 85 cents). These warrants remain highly speculative and could go to zero. But think about it: AII has nothing but cash and a charter to find something to acquire. Might it get an even better bang for its acquisition bucks in an environment like this? If so – admittedly a big if and a true speculation – that $1.05 could with hindsight prove to have been a good deal not just because it’s ‘30% off’ last month’s price, but also because AII might itself be able to get ‘30% off’ when it goes to make its acquisition.
Famous last words. But still.
Have a nice weekend!
Quote of the Day
Very few American investors buy any stock for the sake of something which is going to happen more than six months hence, even though its probability is exceedingly high; and it is out of taking advantage of this psychological peculiarity of theirs that most money is made.~John Maynard Keynes
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