Back when I was writing for magazines, this was the only headline my editors ever really wanted me to address. Sometimes they would put NOW in all caps.
Wednesday, I suggested caution.
Yesterday, Aristides Capital’s Chris Brown included this thought in his monthly investor letter: “The yield curve inverted this month, portending a high-likelihood of recession within the next two years, so I am unexcited about cyclicals and financials here, while growth stocks remain historically expensive relative to value, so it’s hard to be excited about them either. We’re at a point in the economic cycle where even completely fraudulent companies can sport a $100 million to $300 million market cap, and money-losing companies can be worth billions or tens of billions. It’s a good time to find shorts.”
Chris is a deeply skilled investor but most mortals should avoid shorting stocks — you can go very broke shorting stocks even if, in the long run, you are proven to have been right. And few investors come out ahead over the long run trying to time the market. So especially if you’re young, just keep adding $100 a month or $500 a month to your Vanguard index fund and be thrilled if the market tanks — you got your new shares on sale.
Mary U: “I agree recession seems inevitable. The R’s will create a huge deficit, and the D’s will have to turn it around. Again (like Clinton) And again (like Obama) and AGAIN (like whoever gets the nomination in Milwaukee July 16, 2020). Could you explain what you mean by putting your money in cash? Certainly you can’t mean getting a savings account with .ooo1 % interest.”
Having a cash cushion safely on the sidelines is the big picture. Whether you’re getting a .0001% or a 2% after-tax return on it, I don’t much care — but, yes: you can get more like 2%. Ask your bank if they have a deal like one of these — though the convenience of sticking with your current bank or discount broker is worth something, too.
And then there are the stocks you may own with money you can truly afford to lose. The obscure lottery tickets we’re still hoping to cash in. I certainly wouldn’t sell even a share of BOREF — who knows? Even if there’s just a 10% chance WheelTug makes it, and I think the chance is considerably higher, its shares are undervalued.
And I have a new one for you.
Background: a friend owned a big chunk of FANH when he first told me about it in 2013. The stock was trading around $5.40 (under the symbol CISG) but had $8 a share in cash, he said, and a growing auto insurance business in China. The Chinese guy running it, he thought, was honest. So I bought a bunch, and suggested it to you (and then again at $5.76 a couple of years later). You just wait, and wait, and wait — but sometimes, patience pays off. A year ago, we sold some or all of it above $30. (Now, at $26, he’s give all his away but still thinks there’s good upside. I’ve sold almost all mine.)
ANYWAY . . . I ran into him last week at a Democratic fundraiser thing and thanked him for all his support and good works (he is a superstar) — and for recommending FANH. “I have another one for you,” he said. Selling for under four times earnings, growing 20% a year. NYSE symbol: CNF. They do home equity loans in China. (China may be in the latter stages of a real estate bubble; but he says the most they’ll lend is 50% of a home’s value, so even if the bubble bursts, they may survive it.) Normally, of course, a company growing at 20% a year might sell for 20X earnings, not 4X.
It’s very thinly traded. I bought a chunk for myself; if everybody else does, it could run up from the $6 or so I paid to $8 or $9 or wherever — and then fall right back down. And of course, not everything works out. We have a shot at doing well with CNF over the next few years, as we did with FANH. But you truly never know.
Have a great weekend!
Quote of the Day
The social safety net should be a trampoline, not a hammock.~Bill Weld
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