My intention is to post a year end update before we enter 2008 with a small section of top value picks for the upcoming year, but all of that will depend on time. I’ve finished my tax-loss selling for the year by selling my loser stocks and minimized my exposure to significant capital gains.
As in August, my attention now will be directed to family matters over the next two weeks as I spend some time in the Ottawa area with my girlfriend and her family and then Christmas at the cottage with my parents & siblings. At this time of year I like to put my portfolios on autopilot, concentrate on family and in the event that something disastrous happens in the market during that time, I have one close friend who I hand over my spreadsheet to and direct to only call if/when the columns change to a specific colour. Other than that, I’m not interested in hearing much of anything regarding finances.
Investors in the market need to come to the realization that tomorrow is likely to not change drastically from today or yesterday. Subprime fears will still be present as well as concerns over ABCP, derivatives, SIV’s and other credit vehicles. Over the past few months I haven’t done a whole lot of anything but tweaking my portfolio to adjust for a much higher degree of risk that I perceive in the market. I’ve done very well this year, but I know now is not the time to get greedy. Stocks appear cheap from their 52-week highs, are trading at depressed P/E ratios and investors are getting anxious not wanting to miss out on the next uptrend. The realization I’ve come to on my own analysis of the market is that we might not see another uptrend. Whether the market goes up, down or trades sideways for the next 6-12 months isn’t the concern I have and doesn’t match the investing objectives I set out to achieve in any of my portfolios, but for many investors it appears that they don’t realize that stocks have as much potential to go up from where we stand as going down. Whether the US experiences a recession or not is likely not the largest question entering 2008, but what strategies individual investors will utilize in order to protect their capital against future losses, inflation and unforeseen developments that might cause large swings in the market as it over or under corrects.
Fundamentals of the world economy & emerging markets aside, people have gotten greedy, ignored inherent risks with other people’s money and are now worried about collapsing structures that appear to be crumbling at their feet. Just watching HGTV with my girlfriend over the past few weeks has helped to show me the outrageous prices that people are paying & spending on their homes in relation to what they can afford. At some point the banks stop lending to consumers and it appears that they’ve already stopped lending to each other.
In an environment such as this an investor should be focusing on quality rather than quantity. Cash might possibly be the best investment for 2008 not from the total return viewpoint, but an investor may stand to benefit from rare opportunities that present themselves only once a cycle or decade by having the flexibility in their portfolio to take advantage of miraculous events. No market, economy or sector is immune from arrogant, greedy and overzealous actions that lead to substantial losses spanning countries.
The current environment is neither as rosy or as gloomy as everyone is making it out to be, but caution should be at the top of every investors priorities moving into 2008. My contention for a good period of time is that there’s something at work behind the scenes that stands to cause major market disruption now or in the near future. You can’t have a uptrend in the markets for as long as we’ve had without needing to trim excesses from time to time as risk is thrown to the wayside and disregard for other’s hard earned money is completely abandoned.
There is value in the markets and I’ve continued to take advantage of them as I hold a portion of cash on hand to deploy where I see opportunities. But my MoS has increased beyond 25% for the first time in all prospective buys and I’m much more focused on scrutinizing financial statements and fundamentals with the intent to ensure higher quality.
The car is loaded, the snowboard is waxed and I’m just waiting for my special lady to announce that she’s ready to go after saying goodbye to all her girlfriends from school after final exams.
Whether you celebrate Christmas, Hanukkah or simply enjoy time off during this holiday season to visit family, rest or reflect on the past twelve months of 2007; my hope is that everyone remembers to drive safe, buckle up and remember to never drink and drive.
Take the extra time needed to get to places safely and remember my warning about risk: whether you perceive that to be in the markets, on the roads or in life…you want to protect what’s most important to you.
If you have to write down one quote in 2008 for your investing actions you might want to consider this one: