This Market is Damned Confusing
By: Tim McPartland,
There is no real discernable way to figure out what the stock and bond markets are going to do day to day–not to say there has ever been a way to do this successfully. Of course we really don’t care about day to day movements, but we continue to have a few firmly held beliefs that will help us be successful investors through the course of the year.
1st we continue to believe that the REIT and Utility sectors are very vulnerable to higher interest rates. 2ndly we believe that companies, as a whole, are going to have one hell of a time growing profits from this point forward. Lastly, we believe that having any capital gains in preferreds or exchange traded debt issues this year will be highly unlikely.
From these 3 simple beliefs we simply do not want to be overweight REITs and Utilities (even though there are some we would love to buy at a lower price), nor do we really want to hold too many common stocks. For us the only reason we ever want to hold common stocks is because they give us the possibility (not probability) of making and exceeding our 7% goal. Unfortunately, while giving us the possibility of beating our goal, they also make it possible to miss our goal in a big way if we have a stock market setback.
With the above in mind we have sold our utility Southern Company (ticker:SO). We had written on May 5th that we were going to be selling it and today is a good day to do so.
The above action moves our cash account to 12.5% on the way to around 20%. At this moment we strongly believe that higher interest rates will give us some great opportunities in the near future to lock down some great REITs at a great yield and that newer preferreds will come to market later in the year with higher coupons.
We note that our saying ‘you can’t win the game unless you are in the game’, comes into play here. We will be sacrificing a little income with these moves, but for now that is the direction we are heading.