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By Ian Wyatt, NewsletterAdvisors.com |
KMP | Dec 24, 2008 |
As editor of Investorplace Media’s Profitable Investing, Richard E. Band is the newsletter world’s No. 1 authority on investing for low-risk growth. His flagship Total Return Portfolio has more than quadrupled in value since its inception in 1990, while taking far less risk than the popular stock market index fund.
Richard, what advice are you giving subscribers/clients to weather the current storm?
The end of the recession may not come until mid-2009 or later, and I suspect we’ll see a bit of a relapse in January when the reality of this hits investors. In the meantime, I’m advising my subscribers to pursue several different strategies. One is to invest in stocks with generous dividends. These will produce more wealth, at less risk, over the long run than low-dividend or no-dividend stocks.
I’m also suggesting some alternative vehicles, some of which offer a guaranteed return, while others are subject to varying degrees of price fluctuation. What they all have in common, though, is that they don’t depend on a rising Dow for their success. They march to a different drum, giving subscribers a chance to gain ground when the stock market is losing it.
So, in addition to stocks, my readers and I are looking at FDIC-insured money market accounts and CDs that pay much higher yields than the U.S Treasury. We’re also putting money in select bond funds and managed-futures funds.
I am an advocate for caution in this market, but I believe the short- and long-term strategies we have in place in my Profitable Investing service have our subscribers poised to stay buoyant in these choppy waters while positioning themselves for much smoother sailing when it comes.
Is your focus on safety or profits or both, and why?
I’ve always focused on both safety and profits. I’ve been advising my subscribers to approach this market very cautiously. We’ve been selling stocks that have exposure in areas that are likely to struggle in 2009, such as luxury leisure companies, emerging markets and student loan corporations, and moving our money into blue chips, dividend-paying stocks and cash equivalents.
As investors, we’re united in our desire to preserve and increase the value of our assets. That requires a pragmatic frame of mind in this market. My mission is to help my readers earn top returns on their investments, with safety. I call it "inevitable wealth." Whether you’re a young person in your 20s just starting a career, or a retiree in your 70s enjoying the fruits of a life’s labor, you can benefit from our low-risk approach to wealth building. It’s a philosophy for all seasons of life, so just about anybody can use it.
What do you think it will take to inject confidence into the markets?
Investor confidence won’t turnaround overnight. On the plus side, President-elect Obama has been slowly but steadily winning the confidence of skeptical investors. His comments promising the largest investment in U.S. infrastructure since the 1950s suggest that his economic stimulus plan will go well beyond bailouts and handouts. Properly administered, spending on roads, bridges and other infrastructure could pay lasting dividends for the economy.
To get a real, sustainable bottom, we’ll be looking for evidence in the weeks ahead that buyers are growing braver and sellers less bold. Trading volume in advancing stocks should run well ahead of that in decliners - not just for a day or two, but for at least two weeks at a stretch. The tribe of stocks touching new 52-week lows should diminish substantially. Gold prices, spreads between T-bill yields and bank rates, and other "fear" indicators should retreat.
Would you have voted for or against the last "rescue" bill, and why?
The question I asked myself is whether I thought this latest initiative from Washington would revive the economy and stock market. The answer probably has less to do with economic theory than with psychology. From the standpoint of theory, I have to doubt whether any government bailout - especially one as large as that being contemplated here - will end up using the taxpayer’s money very efficiently.
On the other hand, I’ve read financial history. As specimens of sound economics, many of Franklin D. Roosevelt’s New Deal programs fell far short of the ideal. Yet the stock market enjoyed some of its greatest gains ever during the first four years of the Roosevelt presidency. Why? Because Roosevelt’s willingness to "do whatever it takes" gave investors (Americans, generally) increasing confidence that the economy would ultimately mend.
By the same token, I think there’s a good chance the Paulson plan will help lift investor spirits this time. Of course, I’ll be watching the technical evidence to gauge whether the effort is working. For now, though, I’m cautiously optimistic.
What would be your fix for the economic crisis, and is a fix in this sector necessary to boost the markets?
I think the government already has most of the tools it needs to stabilize the economy and stop the market panic. If I could add anything, it would be to increase the annual write-off for capital losses from $3,000 at present to something like $20,000 or even (temporarily) $50,000. We should encourage individuals to get rid of obsolete investments and redeploy their capital into ventures that will succeed in the new, deleveraged economy we’ll be living in for years to come.
Most important, once President-elect Obama has put together his "First 100 Days" stimulus package, he should make it clear that we’re going to put an end to the bailouts as soon as the economy shows signs of life. Deep down, investors want some reassurance that the free market is still functioning and that government intervention won’t continue indefinitely. More than anything else, it was arbitrary government tinkering with the economy that prolonged the Great Depression of the 1930s. We don’t want to make that mistake again.
What three stocks would you buy today?
Believe it or not, in today’s often-gloomy market, there are still some good opportunities out there. Here are a few stocks that I like right now:
Kinder Morgan Energy Partners (NYSE:KMP) - As the nation’s largest publicly traded pipeline partnership, this is already a monster moneymaker with a long history of rising dividends - a whopping 427% over the past 10 years.
Lockheed Martin (NYSE:LMT) - Even with a Democratic administration coming in, the world’s precarious security situation makes it all but certain that the U.S. government will continue to modernize our weapons systems - a process that takes big bucks. Currently, the builder of the F-22 Raptor fighter jet is selling at a trifling 12-times this year’s earnings, almost 50% below the stock’s P/E five years ago.
International Business Machines (NYSE:IBM) - IBM’s third-quarter profits leaped 22%, defying naysayers who expected the technology titan to miss forecasts. Big Blue, at 8-times trailing profits, is selling at its lowest price in 13 years. I’m projecting a 30% to 40% total return within a year.
How does your advisory service help its subscribers/clients get through tough times like these?
Investors want the assurance that a real person, with real-world experience, is standing beside them when the going gets rough. My mission is to help subscribers safely earn top returns on their investments. It’s a low-risk approach to wealth building. In times like these, asset allocation is key, which is why I place great emphasis on dividend-bearing stocks. We’ve steadily built cash and increased income as the market has gone further south.
Through the use of my Incredible Dividend Machine, a program that lets you pocket a dividend "paycheck" every month of the year, and supplementing with guaranteed return alternatives such as CDs, inflation protected securities, corporate bonds and managed futures, I help our subscribers stay afloat in these turbulent times.
In between issues, I maintain an online journal within my subscriber website containing my thoughts on market news as it breaks throughout the week. I’ve also recently developed a new free advisory service called Storm Watch. It’s aimed at helping investors get their feet back under them again in this challenging and constantly changing environment.
If you had an average investor standing in front of you, what would you say to him/her to ease concerns and raise confidence in the economy and markets?
I recognize that we’re grappling with some dangers that people under the age of, say 75, haven’t confronted in their lifetimes. You should be taking a cautious approach in this market and not immediately seize the so-called "bargain" opportunities out there. I strongly suspect that we’ll get a chance to buy most stocks (and most equity mutual funds) at somewhat cheaper prices in the New Year.
However, by focusing on low-risk tactics and appropriate asset allocation in the short-term, you should be able to take advantage of rallies and be positioned for what could be positive momentum in the market in the second half of 2009 as a result of the new administration.
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