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By Ian Wyatt, Daily Profit |
CHK | Nov 05, 2008 |
*****Obama Wins
*****Reader Mail
*****The American people have spoken. Barack Obama is our 44th President. From the election polls that I ran to my readers, you favored McCain, but not by an overwhelming majority.
I’m sure we’ll spend the better part of the next 4 years debating the merit of the election results along party lines. But I’ll defer to the ultimate barometer - the stock market - to decide whether our new President has the desired effect.
The events of late seem an adequate farewell to our current President and his 28% approval rating. Americans overwhelmingly disapprove, and the reasons why are amply evident in your 401(k) statement: we’re certainly not better off today than we were 4 years ago. Or 8.
There are two ways to look at Tuesday’s Election Day rally. First, the election was a large uncertainty from the market. Second, investors believe Obama will be good for the economy.
I’d say both are true. After all, you can’t really say the election results are a surprise. Obama’s had a commanding in lead in most polls for months. You could look at the actual vote as something of a formality.
*****I think the Election Day rally was the result of relief that the campaigning is over combined with a stock market that looks undervalued to many.
Will Obama’s tax policies send investors running for the exits? Not likely. Taxes are what they are. 401(k)s and IRAs aren’t going away and the stock market is still the best game in town.
It will be interesting to see if stocks continue on their winning ways over the next few days. The Dow Industrial Average is up 1,450 points in the last week. That’s not bad for a bear market rally. I can’t say I’d be surprised if stocks give up some ground over the next couple of days. And I have to add that I’m more inclined to chalk up any such sell-off to profit-taking after a nice run than a vote of no-confidence for our new Commander-in-Chief.
*****I’ve uncovered 3 stocks poised to benefit greatly from an Obama Presidency. This Special Report is called The 3 Stocks to Own Today for an Obama Election Victory in 2008 and you can get your copy here.
*****From L. Collins: Thanks for the helpful insights. Finally there is someone out there that makes (common) sense to the average investor. I’m 60-years old and have invested in my companies 401K for the past 22-years. I expect to work another six years. I’ve done all the right things with my investment choices and done well for the long haul but, like many, I’ve seen the bottom drop out of my 401K the last month. What are the chances my 401K will fully recover before I retire?
I can’t tell you how many times I’ve seen the words "I’ve done all the right things…" It’s tragic. And it’s why Americans are still so angry about the financial crisis and subsequent Wall Street bailout. The very people who were supposed to be looking out for our investments completely failed in their responsibilities. There’s no accountability, and we’re now stuck with the losses.
But there’s a deeper issue here, as well. A handful of "market strategist" types have had the nerve to come out and say that the risks of buy-and-hold investing have been understated to investors as they set up retirement accounts.
Our national retirement savings plan is the stock market. We’re dependent on 401(k)s and IRA accounts to fund our retirement years. Theoretically, that’s a good idea. After all, stocks go up over time. It’s like clockwork.
The flaw here is timing. Of course we know there will be ups and downs in the stock market. But if one of those downs comes right before you retire, suddenly that universal panacea - that stocks go up over time - isn’t so reassuring.
Now, to address the question here, yes, I think in 6 years time it’s highly likely that your 401(k)s will have at least returned to the values they had a few months ago. But that’s no reason to stand idly by and watch your current holdings simply regain lost ground.
6 years is a good amount of time. And if you project historical gains of around 8% a year for stocks, it seems reasonable that you’ll make up the losses and then some in 6 years.
*****Joyce had a comment about convertible bonds: Happen to read your comment on Convertible bond. Agree that Convertible bond is as volatile as stock but can’t help noticing that prices had been battered to below fundamentals due to selling by hedge funds.
Believe that a CB has the same credit standing as a senior bond. Wouldn’t it be a better idea for a Fixed Income investor looking for interest income to buy a CB which is easily offering 5% more than its senior bond?
After all, the equity premium embedded in a CB is currently priced at 0 and a CB holder is only taking the risk of default.
That’s a pretty interesting angle. Forbes published an interview with a veteran convertible bond investor on October 29, 2008. He says convertibles are as cheap as he’s seen them in 40 years.
*****Scott C. wrote It makes me think you have a conflict of interest the way you keep pushing Chesapeake Engery. Am I the only one??
First, I’d like to applaud Scott’s skepticism. It’s always wise to wonder why a writer is saying what he or she is saying. Especially when it comes to investment advice and commentary. After all, this is your money we’re talking about. You shouldn’t ever blindly trust what someone says.
A little more skepticism from the funds who were buying up mortgage backed securities and from the companies who were insuring those investments could have prevented a lot of pain.
Second, if I have a personal stake in a stock mentioned or recommended in Daily Profit, I’ll tell you. But to prevent the appearance of a conflict of interest, I make it a policy for my employees not to own the stocks that we recommend.
With that said, I make a living, and pay my people’s salaries, from the subscription fees I generate for providing quality, profitable research on individual companies.
In other words, if the picks I make don’t make you money, we don’t make money. So when I find stocks that are great examples of the kind of research my team does, stocks that I think will make you money, I’m definitely going to talk about them. And because some Daily Profit readers may have bought Chesapeake Energy (NYSE:CHK), I feel it’s important to continue to express my views about the company.
Finally, you’re not going to find stocks that could be manipulated, or "front-run" in the Daily Profit. That type of activity would undermine the long-term business potential I’ve worked hard to establish. Plus, there’s no way I could manipulate Chesapeake anyway. That stock trades 29 million shares a day. That’s roughly $645 million worth of stock.
I’m flattered that someone thinks the Daily Profit can influence $645 million in stock transactions. I’ll try not to let it go to my head.
And by the way, with yesterday’s move, Chesapeake is now up a solid +25% since I first covered it on October 16.
*****Mark H. has a question that I’ve seen frequently: I enjoy you editorials and would like to put them into action. Problem is that all my money is in a 401K and my plan has about 30 funds into which I can invest. Some of them hit on the equities/markets you discuss, but they are a fund.
Your advice targets specific companies that you recommend. Do you ever recommend a fund ? I’m getting too close to retirement to go into single stocks.
Just because you are not investing in individual stocks doesn’t mean you can’t incorporate new ideas and information into your investment strategy. I expect you have access to a variety of funds that cover a wide range of business sectors.
If you come across investment ideas that make sense to you, you could either look through the available funds or call the fund company for guidance in how to put a particular idea into play.
Just be aware that trading in and out of funds in a 401K is probably not the best strategy for long-term success.
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