Getting Back in the Game
Rumors come and panics go. Black swans occasionally swim by, but they inevitably swim away. I'm always the optimist, investing on the theory that if the USA goes down, there's no point in even worrying about life beyond hunting and gathering.
At this writing, the Center for Disease Control has continued to lower COVID-19 death rates down to incredibly low levels (way less than 0.001% and dropping so far), which means it may be time to regain sanity and look at opportunities for investment. So for what it's worth, if you're like me, jumping back in to old Uncle Sam's economy for fun and profit, there are some things you may want to consider:
1. Up until about 20 years ago, interest rates and stock prices levered off each other: High interest rates tended to lower stock prices and vice versa. That hasn't been true for a while, because of the Fed's basement level interest rates. As long as stock dividends remain high -- substantially higher than Fed rates -- their prices are going to continue to rise. They'll keep rising until those dividend yields fall below 3%, where the risk doesn't pay as much. For now, though, there are quality issues paying 5%, 8%, 11% and more.
2. Importantly, these days, Federal interest rates have nothing to do with stock prices, because the Fed rates are all about stimulating the market, not providing a safe haven for investors. The two are completely unrelated, except that if businesses borrow at low rates, they'll grow their businesses -- which is great for stocks and dividends.
3. If you didn't buy into the recent crash prices of stocks, you're not alone. Sure, lots of hindsight people will claim to have bought into the crash prices, but almost none of them are telling the truth. And if they are, they're big risk takers: At the time of those basement prices, the market and the state of the union was far too erratic to risk any kind of purchase. Even now, governors' and mayors' heads have swollen with power, and their policies are political, not economic, which means there are still wild cards out there that could influence markets for no true business reasons. Waiting for a little more stability still affords market watchers plenty of room to recapture their investments and maybe pick up a few bargains, including some that are ripe for the picking right now.
4. A recovering market is, in my opinion, no time to buy into corporate bonds. Too many companies fell for the propaganda and made rushed decisions that made no sense. Having advised corporate directors most of my career, I learned quickly that the people sitting around the conference table aren't always the brightest bulbs on the tree, and in the last decade, the situation has only gotten worse: Lots of knee jerk reaction, no considered initiative. You don't want to lend money to those kinds of people, especially when they're not personally or morally responsible for paying you back. Most of them are simply Caretaker Managers whose loyalties are to their employment contracts, not the companies in their charge.
5. Knowing where to invest is always an issue, but it's never been truer that glamor and high profile companies are usually not the place to be, mainly because they're the most heavily influenced by the media. My preference runs to dividend stocks and American mainstays, like energy and REITs. I personally avoid transportation, pharmaceuticals, technology, entertainment and a few other categories that are prone to sudden erraticisms.
You know, like, say, manufactured virus hysteria.
Good luck. Be careful out there. And while you're at it, see how much you can sell a box of unused masks for.
At this writing, the Center for Disease Control has continued to lower COVID-19 death rates down to incredibly low levels (way less than 0.001% and dropping so far), which means it may be time to regain sanity and look at opportunities for investment. So for what it's worth, if you're like me, jumping back in to old Uncle Sam's economy for fun and profit, there are some things you may want to consider:
1. Up until about 20 years ago, interest rates and stock prices levered off each other: High interest rates tended to lower stock prices and vice versa. That hasn't been true for a while, because of the Fed's basement level interest rates. As long as stock dividends remain high -- substantially higher than Fed rates -- their prices are going to continue to rise. They'll keep rising until those dividend yields fall below 3%, where the risk doesn't pay as much. For now, though, there are quality issues paying 5%, 8%, 11% and more.
2. Importantly, these days, Federal interest rates have nothing to do with stock prices, because the Fed rates are all about stimulating the market, not providing a safe haven for investors. The two are completely unrelated, except that if businesses borrow at low rates, they'll grow their businesses -- which is great for stocks and dividends.
3. If you didn't buy into the recent crash prices of stocks, you're not alone. Sure, lots of hindsight people will claim to have bought into the crash prices, but almost none of them are telling the truth. And if they are, they're big risk takers: At the time of those basement prices, the market and the state of the union was far too erratic to risk any kind of purchase. Even now, governors' and mayors' heads have swollen with power, and their policies are political, not economic, which means there are still wild cards out there that could influence markets for no true business reasons. Waiting for a little more stability still affords market watchers plenty of room to recapture their investments and maybe pick up a few bargains, including some that are ripe for the picking right now.
4. A recovering market is, in my opinion, no time to buy into corporate bonds. Too many companies fell for the propaganda and made rushed decisions that made no sense. Having advised corporate directors most of my career, I learned quickly that the people sitting around the conference table aren't always the brightest bulbs on the tree, and in the last decade, the situation has only gotten worse: Lots of knee jerk reaction, no considered initiative. You don't want to lend money to those kinds of people, especially when they're not personally or morally responsible for paying you back. Most of them are simply Caretaker Managers whose loyalties are to their employment contracts, not the companies in their charge.
5. Knowing where to invest is always an issue, but it's never been truer that glamor and high profile companies are usually not the place to be, mainly because they're the most heavily influenced by the media. My preference runs to dividend stocks and American mainstays, like energy and REITs. I personally avoid transportation, pharmaceuticals, technology, entertainment and a few other categories that are prone to sudden erraticisms.
You know, like, say, manufactured virus hysteria.
Good luck. Be careful out there. And while you're at it, see how much you can sell a box of unused masks for.
posted by Rob Frankel at 8:01 AM
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