Diamonds and Dogs

January 29th, 2009

Someone asked me the other day, in reference to the year of 2008, what do we do next? These are obviously tough and unprecedented times, but I will give it a shot. First, we need to turn off Jim Cramer and business media shows in general. The headline news is going to bad over the next several quarters and there is nothing we can do about that. I am not sure if it is humanly possible to keep up with the frenetic trades of Jim Cramer. The second thing I would do would be to treat my stocks and bonds as investments, as if I was going to own the entire company and support myself off the investment. To be successful as a stock investor, there are times when you have to take risk when things look the bleakest. When it feels like everything is all clear, like tech stocks in 1999, bank stocks in 2006, real estate in 2007, etc&that has proven to be the riskiest time to buy stocks and mutual funds. Times like these offer significant gains, but this going to take time and as Wayne Gretsky has said about being a great hockey player, "skate to where the puck is going to be, not to where it is." For investors, that means buying for 5 years from now and beyond. Given this I would be building positions in the strongest stocks and mutual funds with an eye towards dividend yields. In this climate, I would also be tiptoeing into closed end municipal bond funds, the higher the quality the better. And finally, I would be looking seriously at international bond funds for a way to gain yield in growth countries. Emerging markets should also be on the list of purchases.


Diamonds
Colgate (CL) and 3M (MMM) both gained today after announcing earnings. COL rose $1.60 to $65 and change as they reported a fourth quarter profit of $497 million. In late trading, 3M Company rallied $1.13 to $56.55, as they beat expectations, although profit was down 37%.

Dogs
Textron (TXT) crashed and burned today as the maker of Bell helicopters and Cessna aircraft reported very disappointing earnings. As a large financier, similar to GE, TXT has been hit hard (-80% from highs) as the financial market unwinds. Based in Providence, at least they got to watch the Friar's clip the SU Orangeman in basketball last night.



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