After an extended bounce, I'd say an environment where the DOW goes below 1000. After reductions in employment and shipping reverberate throughout the globe, constant shortages in necessary resources will continue to impede recovery. Some of those shortages may be due to new geopolitical changes.
1000 would be much worse than the crash of '29. Why/how would you predict something that's never happened before?
Why are you talking about resource shortages? Besides gold, the prices of commodities are falling. Resources are being stockpiled because their prices are too low.
Why, besides a huge war, would global shipping be reduced below demand?
Basically, I have no idea what you're talking about.
Maimonides, I am actively hunting for and buying good stocks on the cheap in companies with strong long term value. Yes, it is a gamble, but I'm willing to roll the dice that Coca Cola is a cheap buy right now.
A friend who administers an investment fund calls me every now & then & asks me what I think of companies like Coke & Pepsico.
The upside is that virtually every adult on the planet is familiar with their name & products. That can't be said about many companies or products & it's value is huge. Both have survived heavy competition for many decades which is also a good indicator. It's hard to imagine either of them pulling an Enron. By far, the fastest growing segments of the beverage category are energy drinks & bottled water. Coke & Pepsico already had the infrastructure in place to take advantage of those trends.
The downsides have always scared me away from investing in them.
-Their products are VERY price sensitive & their profit margins are tiny.
-They rely heavily on credit for day-to-day operations-something that's an even bigger Achilles heel in this credit crunch.
-I've watched both of them lose hundreds of millions of dollars on really stupid new product roll-outs. Anybody remember Pepsi Spice? They gave me 3 pallets of it for free because it was cheaper than paying for the garbage removal. I could have had as much as I wanted, but I didn't want to fill up my warehouse space with the crap. It tasted like cough medicine. Anybody remember New Coke? Coke Blak sat on store shelves until it went out of date. That one item cost Coke countless millions in store credits. Statistically, new products account for half of all retail sales growth so there's a huge incentive to find the next good product. Coke & Pepsico have been especially bad at doing so for several decades.
-Their products, being liquid, are heavy & bulky & thus expensive to ship. They do all of their own shipping. They are very sensitive to fuel costs.
-Their market is extremely competitive.
-They have to spend billions on advertising & I don't prefer companies that are slaves to massive expenses. Sometimes, it's a huge success-everybody knows the tune to "I'd like to buy the world a Coke." Sometimes it's a giant money pit-nobody remembers a Pepsi slogan from before "choice of a new generation."
EDIT: I forgot about Pepsico's Frito-Lay division. It's a plus for Pepsico.
I'm not throwing money I need for important stuff into the market, I'm throwing beer money into the market (so to speak).
Same here.
I've been really happy with my Netflix investment. Up 13% since I bought in, and compared to the market, its bested it by double.
There are some great opportunities out there. Some real stinkers too.
I decided not to buy Walmart in the '80s because I was watching one chain store outfit after another fall. In the '90s, I didn't buy it because I thought I was too late.
Somebody needs to invent a time machine for me...
I'm mentioning that because, while I think Netflix will continue to grow for awhile, I feel like I'd be getting in too late. At the same time, I'm sure I'm wrong.
I'm looking at companies that I'm fairly sure will still be around in several decades. Technology is moving so fast I'm shy of investing in purely online companies. Look at all those Netscape investors. Look at AOL. Does CompuServe even exist anymore?
Thanks for the feedback, JH.
You know, I've always wondered something, perhaps this is a good place to ask. People always tell you not to gamble with money you need or have a use for -- that investing and gambling is fine, as long as you do it with money you don't mind losing. You have put aside X dollars as money that you need, and Y dollars as money you don't need and don't have any use for.
But why would you want more money that you don't need? Why would you want even more useless, throwaway, beer money? It doesn't make sense! Perhaps I'm the only one perturbed by this cognitive dissonance: if the money you're gambling is worthless, then surely any money you win from gambling is equally (or even more) worthless -- why would you bother?
This is the best answer to a question I've seen at CFC in a LONG time:
Why have sex beside the times you want to make babies?
Here's another explaination that hasn't been posted yet:
Look at your paycheck. Set aside all the money you'll need for rent, food, clothes, transportation, etc.-the necessities. Then put the remainder into your savings account until you have enough to live on for about 8 months.
If anything is left over, that's the money you use to go see a movie, drink at a bar, buy a pleasure boat, whatever. That left over money, if you have any, is what you consider when deciding whether to go see Rocky XVII, buy a stock, buy a bond, score a bag of pot, invest in a CD (the account, not the music media), buy tickets to the Rolling Stones World Tour: Rockers with Walkers...whatever. It's not worthless. It's the money you have that you don't need to survive.
A big problem during the Great Depression was that allot of people had their survival money in stocks. Put your big screen TV money there if you have any, not your peanut butter money.
Another interesting question to discuss is when treasuries' scheme will collapse. According to last Russian news Russian government may start to sell them soon (to cover budget for 2009), others countries may follow suit to raise some cash, China is becoming more and more wary about them, Japan's export are falling and yen is returning to country, and finally USA has astonishing budget deficit and has to issue a lot of treasuries. There are not much time, so it is hard to pin point exact month (at least).
Maybe it's an error of translation, but why do you see bonds as a "scheme?" It's a legitimate way for governments & companies to raise operating capital.
Can the bond market even get any worse? I've heard that some of them already have negative returns. It seems like individuals are getting into bonds because they are scared of the stock markets, they are worried about bank solvency & they already have their mattresses full.
Wait out any price decline due to time and a perpetual holding period.
As a grocery store owner you know very well what moves in (customers) and out (vendors) of the cash register. What stays in the register is your positive cash flow.
That is my #1 concern every day. Cash flow decides whether or not my doors stay open.
Now apply that to businesses you can own that are publicly traded. Some have better health and management along with less debt than assets. Their cash flow determines value and if they're generating a lot for the price (and they don't waste it) I'll end up a winner. It's why I don't care about the macro view of the market whether it's the Dow or S&P or DAX for that matter.
Gotcha. You're hunting for the needle in the haystack & you've got a magnet.
This also can be done with senior debt and collateralized bank loans. There are some great operating businesses that are overleveraged and if they fail will put ownership in the hands of debtholders at 1 to 2x cash flow. If they don't fail the investment will return double digit income and $1 of principal on say $.60 invested.
In the right situation a win win.
This is getting a little over my head, but I think that a business gets overleveraged through bad management. Wise management will know when to cut the losses & close up shop. I have seen a few cases where debtholder wholesalers had to take over retailers, but that's a really bad situation for all parties. It sounds like you're talking about investing in businesses that need to die.
