Just Hang on And Scream

Since Standard & Poor’s downgraded U.S. debt back in early August, the market has just gone insane. The most terrifying roller coasters can’t compete with the Dow which, in just in the two weeks of my current vacation, dropped something like 700 points and then jumped back over 1,000. These kinds of changes in the stodgy old Dow don’t happen in a typical year. Yet on one day, the Dow dropped close to 100 in the time it takes to drink a can of Diet Coke. The rise of Exchange Traded Funds has the potential of turning the last 20 minutes of any given trading day into a ride on the Zipper. If you have never seen a Zipper in action, check it out on Youtube. Only a lunatic would get on a carnival ride that looked like that.

I never quite understood why S&P downgraded U.S. debt at this time. As long as our debt is denominated in U.S. dollars and we own the presses that print the bills, our debt will be paid in U.S. dollars. The value of the dollar has been dropping steadily since F.D.R. confiscated gold coins back in 1933. If the downgrade was tied to the drop in the value of the dollar it should have started during the Carter or even the Nixon administration. The other stuff going on in the world is old news. Everybody knows there is going to be some kind of default on Greek debt. The only question left to be answered is who is going to pick up the bill. The answer to that question could trash a sector or a country, but all sectors in the entire world?

So, why the crazy gyrations? Who knows? As the football players say, “It is what it is.”

I have concluded this is a very good time to be a trader (which readers of this blog know I am not). A market that hops up and down in triple digit jumps should send every technical trader, both machine and human, into wild spasms of adrenaline fueled ecstasy. How about the rest of us, the value investor? The only thing I see that I can do that makes any sense is to just hang on and scream. If I have made wise investment decisions and own good companies that pay a righteous dividend, time is on my side. I don’t think people are going to stop buying Coca Cola, Band Aids, gasoline, or Tide laundry detergent. If the share prices get artificially low, the dividend reinvestment program buys more shares at a lower price. As long as those dividends keep rolling in I should be OK.

It is a very great temptation to join the crowd and sell in terror when the market is at a bottom and jump aboard a soaring stock just when it is at a peak. Retaining perspective and discipline when you are losing or making outrageous amounts of money in a single day isn’t easy, but history indicates this is what separates winners from losers. I hope history can be trusted. I want to retire 15 months and two weeks from today, but who’s counting?

At the recent bottom, I once again faced the question, “When to cut my losses and run?” I have three holdings that I find particularly annoying. I have written about GE on previous occasions. I stepped into a classic value trap on that one. I still believe in the company, they seem to be doing all the right things, but the stock remains at historic low levels. I would sell it but all the research reports give it good ratings. We shall see? I bought Apache at a bad time, when oil was near $150 a barrel. Obviously an oil exploration company is not going to be valued as highly when oil is selling around $90 a barrel. They also own considerable natural gas holdings. I still want a piece of that action so I am holding on. Hong Kong and Shanghai Banking Corporation is the last of my three embarrassments. They, like all European banks, are taking a bad beat down even though as far as the public knows they are well capitalized and one of the most liquid of the European banks. I originally bought this stock to gain exposure to China without the risk of corruption and fraud rampant in that country as they evolve towards something like a more mature form of capitalism. I still like it and it pays a 4.3% dividend that seems safe, at least for the moment, so I will hold on. Just to be honest, I seem to be better at deciding when to buy a stock than I am at deciding when to sell a stock.

And Please! Let’s be careful out there.