4 Easy Steps (and 3 Stocks) to Protect Your Portfolio Now
- Feb 04, 2010
- admin
- Investing
I DON’T KNOW ABOUT YOU BUT I’VE BEEN FEELIN KINDA “OUT OF TOUCH” THESE DAYS.
Uncool. Not hip. Square. Crusty. Old Fashioned.
Maybe it’s because I’m still the only person in my group of friends who doesn’t believe that it’s “just more convenient” to read my newspapers online each day. I don’t know about you but the most inconvenient thing for me to do is to look at my computer for a second more then I have to each day.
Or maybe it’s because I refuse to rinse my hands with anti-bacterial soap every five minutes. Yeah, I get it. Germs are dangerous. But I’ll take the germs that have been with me since childhood over Howard Hughes any day of the week.
Perhaps it’s because I refuse to ever even consider becoming a vegan. Call me crazy, but I don’t think we fought to the top of the food chain only to give up eating meat.
But what makes me feel most out of touch with this generation – my generation – has nothing to do with computers, anti-bacterial soaps or the misplaced guilt of fellow omnivores…
It’s the shockingly casual attitude we have about walking away from responsibilities like paying our mortgages.
And I’m not talking about a deadbeat who never should have bought the house in the first place. Nor am I talking about the village idiot turned real estate mogul turned village idiot again.
I’m talking about people who have money. People who made a decision to buy their homes and made their decision with facts. People who should know better. People who have the money yet are choosing to walk away.
Now I’m not saying that it never makes sense for someone to walk away from a loan they borrowed. There are plenty of long-term homeowners who were well within their right to borrow against their equity as the value of their homes increased. And regardless of what fun they had spending the money, if their homes are worth 30% less then the amount they borrowed why should they pay it back?
And I certainly wouldn’t begrudge the right of someone who bought their first home at the top of the market to walk away. Why wouldn’t you walk away if you borrowed and promised to pay back $250,000 to buy a condo that’s now worth $100,000?
Only suckers honor their word under circumstances like that, right? Isn’t that the way the system works? Isn’t that the way the big boys do it? Why should I be a sucker if companies like Blackrock are able to walk away so easily from mortgages like Stuveysant town? Isn’t it our God-given right as Americans to walk away and start over? Isn’t that what this country was founded on?
Now I’m not sure what this thinking says about the direction of our society. Especially when you contrast that with the first scene from Saving Private Ryan. You know the scene I’m talking about. The one where our forefathers are storming the beaches of Normandy. The one with the boatloads of our grandparents and great grandparents had to run into a wall of bullets. The one where they had no choice.
While I’m certainly not smart enough to consider the long-term implications of behavior like this, I do know a problem when I see one. And this trillion dollar problem is now my problem, your problem and our children’s problem.
That’s right – every person we know whose walking away is asking us, as fellow members of society, to pick up a small piece of their mortgage. And you need look no further then our $1.7 TRILLION budget deficit to see that those pieces are beginning to add up and add up big time.
What’s to be done about it? I have two suggestions.
The first is to force every person or company who walks away from their mortgage to pay the same amount of money to reduce the federal deficit. This way, at least, they won’t be asking us to carry a burden we shouldn’t have to carry as fellow citizens. As soon as they walk away Uncle Sam sends them a bill for the amount they would have owed, payable to the U.S. Treasury for Reduction of Federal Debt.
At least this way they can look at their children in the eyes and tell them why it’s so important to honor ones debts. And even more importantly, they’ll help insure that our own children will live in a country that can afford to defend itself.
In lieu of that I suggest the following –
1. Stay away from capital intensive companies: Heavy equipment takes a beating against inflation. And inflation, my fellow citizens, is-a-coming.
2. Buy companies that have pricing power: A company that can rise prices above the inflation rate will earn good profits regardless. It’s as good of a hedge against inflation as gold is. I think about Hershey (SYM: HSY), a stock I own.
3. Buy and Hold: They say buy and hold is dead. I say buy dumb and hold should never have been alive. Stick with great companies bought for reasonable prices and hold them for as long as you can. Not only will your returns increase by virtue of a lower tax bill, but with the coming increase in taxes long-term investing will give you double bang for your buck. I think of Starbucks (SYM: SBUX) and American Express (SYM: AXP), two stocks I own.
4. Short the dollar: If we can’t tackle our budget deficits the U.S. dollar will fall further. A lot further. You might as well profit from it.
I can’t predict what the future looks like, but there is a lot of uncertainty out there and you have to look before you leap.
The good news is that there’s still money to be made. But there is one caveat: It’s not going to be as easy as it was.
But if you keep a few simple rules in mind making money in this environment should be a heck of a lot easier for you then for most folks.