Scary Markets, But Are You Hanging On? We are Doing the Best We Can Do
By: Tim McPartland,
As much as anyone we realize the movements in the stock market, the last 10 days, have been pretty damned scary, but we also realize that a goal, preparation and common sense will carry an investor through the terror with somewhat of a minimal amount of damage. We know that through history (at least our history which would be back to 1971 when we bought our first common stock) that these very severe movements happen, usually in reaction to domestic or global economic events, and over time the events are resolved and we can all move forward.
1st off one needs to have a goal that is realistic. For us that we have chose a target of a 7% annual return. While this goal seems to be reasonable and realistic it really might be a ‘stretch’ goal for a conservative income investor in light of the zero interest rate environment we have been in for years. While we have averaged 7-8% for a number of years this would appear to be the year when our average will drop a bit, but we knew that time would come and all we can do is work through this time with common sense.
Our preparation for the current events was in positioning our portfolios in fixed income investments with shorter durations (maturities), while minimizing MLPs, REITs, CEFs and perpetual preferreds. Unfortunately we also chose to hold some common stocks. While it is unfortunate that we are holding common stocks we have been able to hedge away much of this risk. Until such time as we want all of our portfolios in ultra conservative income issues we will likely hold some level of common stocks.
The common sense we speak of above is the resistance (discipline) we must maintain in not purchasing stocks of companies such as upstream MLPs (right now), because we ‘might’ get a quick double–or triple, or energy preferreds because they have a current yield of 20%—even though that distribution might be suspended at any minute. More than any other year of our investing life we have minimized dumb purchases (although the gambler in us causes the urge to buy to remain).
So with the above we have remained in the black this year and we hope that each of you have used a similar discipline to remain profitable and successful.