SubscribeEconomic Downturn: Profiting with the 5 Pillars
February 14, 2008
Just listening to investors or analysts talk these days and it is hard to miss the ongoing chatter about an apparent and impending recession. Some analysts say we are already in one, others point to its arrival in the near future. Regardless of what the experts have predicted, no one can deny our country’s economic downturn. Looking at the pathetic housing market, the recent lackluster results in the financial markets, and the absolute horrific price of gas, it is fairly easy to assume we are well into an economic downturn, moving toward a full-blown recession.
So what do you do when it comes to investing in this turbulent time? Do you panic and pull out all your investments, toss the cash in a garbage bag and hide it under the mattress until this is all over? Some might advise such a ridiculous strategy, but the truth is that there is a benefit in being an smart investor during this time.
Investing, like any other business, is all about making good use of whatever advantage you have, and when the masses pullout, it is often a good time to think about going in.
Recession/bear market investing is absolutely different than traditional investment strategies for many reasons. To begin with, the average investor should probably not enter into risky investments like futures trading, option buying, or strategies that utilize leverage at a time like this. When an investment is considered a risky move in a good economy, then in a bad economy it should be considered off limits, unless of course you have a powerful grasp on the art of the advanced trading style that gives you a leg up. For most investors though, it is a good idea to stay away from such a risky endeavors, and focusing on the 5 pillars of investing during economic downturns.
The Five Pillars of Investing During Economic Downturns:
1. Understand The Business Cycle
2. Perform an Internal Audit Before Buying Anything
3. Invest in Evergreen Industries
4. Invest in Long-Term, Proven Winners
5. Look for Deep Value Stocks
The first and most important move any investor can make during an economic downturn is to educate themselves about the business cycle. All businesses, and as a whole our economy, go through a cycle. They have growth periods, followed by stagnant periods, followed by downward periods. This is something that happens to Read more
Economics for WEAK of Feb 15th
February 13, 2008
Just as I was thinking that there was a chance that the markets may begin to to stabilize, there is banter around in print and media that has me questioning that thought. It is apparent that there is a disconnect from reality that continues to be reported.
“as long as you can service the debt” is one of the recent comments that has me worried . The truth is that unless personal debt remains constant and income/wages are somewhat stable consumers will have less money to spend and more fear about their future. But that is not what is actually occuring. Layoffs, reductions and a sharp reality check shows that they unless there is a continuation of the bailouts, the future for the consumer is bleak. Not good!
There are many factors that affects markets, no doubt. Yet the overhang and focus is obviously on consumers. A reassessment of credit and a real plan, instead of throwing money at the problem is more in line what should happen. Bailout, Bailout, Bailout is what is desperately wanted and the markets will continue to kick, cry and scream until is gets its way. Yet a bailout will be a monumental mistake that will create immediate relief, but long term pain. Yes, there is a moral hazard concern here!
We will be paying close attention to the export prices which should continue to drift down. That will be good.
Retail sales will assuredly be better than expected since there are no expectations. Realize that his is one of the tried and true tactics for the markets: lower expectations and then report over the expectation. Pathetic as it may seem, it is a regular occurrence.
We are expecting Retail Sales to come up short, but better than expected. OR said another way, not as horrible as is priced into the markets.
This will help to bring the focus back to the idea that we are closing in on a recession status. No doubt, this is an important week.
January Automobile Sales - Pathetic
February 4, 2008
According to Briefing.com, there was significant softness in the auto sector for January. This is having a negative impact on the sector. None of this seems to be a surprise, does it?
Here is their take:
Highlights
-January domestic light vehicle sales 11.7 mln (-6%).Key Factors
-Poor start to the new year with a -6% decline from December and -8% from a year ago. Weakest pace since July
-Total sales (domestic and imports) ran at a 15.2 mln pace, also the weakest since July
-Compares to average domestic sales of 12.4 mln in 2007, 12.8 mln in 2006.
-Domestic autos fell -8% to 5.1 mln, light trucks -5% to 6.6 mln.
-Imports held at a 23% market share. Averaged : 23% average in ‘07, 22% in ‘06 and 20% in ‘05.
-With 20% of the weight in retail sales, growth in vehicle sales have a significant effect on sales.
Big Picture
Domestic vehicle sales are slowing due partly to stronger import demand and more largely to slower consumer spending on big ticket items. January domestic sales of 11.7 mln compare to a 12.4 mln average in 2007 and 12.8 mln in 2006. Incentives provide some monthly swing amid the downward trend. High gasoline prices provide the advantage to fuel efficient imports and domestic autos but SUV sales have not shown a strong decline given the larger discounts awarded and domestic preferences. Foreign market share has grown to 23% in 2007 at the expense of U.S. manufacturers. With a 20% weight in retail sales, vehicles provide the monthly swing to consumer spending.
TDI Episode 43: Inside MSN Money and The Facebook Factor
February 3, 2008
Special Guest: Chris Jolley, MSN Money Senior Manager. $180 prize giveaway. MSN Money and discussion of where they are going. Andrew begins with a discussion of the Microsoft and YAHOO! deal and the real reasons for the move. Then we go in depth into the MSN Money site and what it has to offer.
Chris Jolley is a 12 year – veteran of Microsoft Corporation, having served in a number of business and marketing capacities. Currently, as the business leader for Microsoft’s Financial Products Group, Chris Jolley is responsible for defining and executing the marketing strategy for Microsoft’s consumer finance products, including MSN Money and Microsoft Money software. In this role, Jolley oversees the distribution, sales, public relations, and advertising of the products, as well as industry partnership efforts.
During Jolley’s tenure with the Financial Products Group, the MSN Money site has grown from 2 million visitors a month to over 13 million and the Microsoft Money software has evolved to include unprecedented Web integration, marking a new era in automation for online financial activities.
He has been a speaker and moderator at numerous financial conferences, including American Banker’s EBPP and
Account Aggregation conferences, Spring Internet World and NetFinance, and has become a recognized industry expert discussing trends and issues in the online finance space.
Jolley joined Microsoft in 1995. Prior to re-joining the financial products group, he focused on partnership marketing, distribution and fulfillment for the MSN Internet Access business, direct marketing for Microsoft’s consumer annuity programs and leading the merchandising teams for MSN Shopping and Windows Live.
Stocks Mentioned: (MSFT) (AAPL) (YHOO) (GOOG) | Get Andrew’s Book - The Disciplined Investor
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Microsoft and Yahoo! - Facebook is the Real Reason
February 1, 2008
Balmer is dancing, Yang is sobbing. If you listen closely, you can almost hear the distant sound of Taps playing as the vultures are circling what is left of a once gorgeous technology story. After a pathetic quarter and an even more disappointing year, Yahoo! is now bleeding a slow death. The takeover announcement has opened a hole in the fabric of the universe today. It may seem like an alternative reality that Microsoft (MSFT) and Yahoo! (YHOO) will merge, but that was precisely what was announced. For $44 billion (66% premium), Microsoft will step up their web presence and create the most significant competition to Google (GOOG) that we have seen since Google’s inception.
Throughout the morning, this announcement was the focus of CNBC discussions and online message boards. Admittedly, it was a left-field surprise to guests and reporters as well as individuals and institutions. One oddball standout in the discussion was CNBC’s commentator Jim Goldman who talked the deal down and continued his Gah-Gah praise (love affair) with Goo-Goo. One has to wonder what is his angle is as he seemed to qualify the news as nothing more than a fly in the ointment for Google’s long-term strategy. Jim, wake up… this easily throws a 900-pound monkey wrench into Google’s quest for global dominance for all things online.
As Google has been executing with almost flawless precision, Yahoo! has been generally fathering. So what makes this so attractive to Microsoft? It is simple, synergistic and an accretive transaction. It has also been estimated that it could provide a terrific addition to the bottom line, adding approximately $.13 of positive earnings per share to Microsoft. That is a deal worth doing!
Beyond that, the reasons and rationale will be tossed around for the next few weeks. Many have also questioned whether or not Google would thrown in a bid for Yahoo!. Truth be told, it is not their style. It would surely meet with regulators disapproval as Google holds the majority of market share. Anti-trust is not Google’s game. Even so, while it appears that this could take some market share, the combination is still not strong enough to significantly hurt Google.
So, why is this merger/buyout in the works? Simple…it is all about the the Facebook Nation. This is apparently the main focus of the Microsoft plan as they have been slowly moving towards a greater relationship with Facebook for some time. Have you taken notice of the sea-change to the look and feel of Microsoft as a company as they have finally realized that “square-corners” is not selling. Microsoft wants desperately to be hip. They own the desktop, but they don’t own the action/nightlife.
Think of a teenager living in their parent’s home. They use it as a place to flop, eat and wash. They tolerate their parents yet keep them at a social distance. Once they have their wings, they are out of there. Apple (AAPL) has done a good job at capturing the early adoption of many of the Gen-Xers and now Gen-Y is up for grabs. This is the social generation with idealism. “They’re after a sense of purpose, work-life balance, fun, variety, respect, and the opportunity to do ‘real’ work that makes a difference. Arguably everyone wants these things from a job but the difference with Generation Y is they’ll talk with their feet when their needs are not fulfilled,” explains by author Peter Sheahan in his book Generation Y.
The communication vehicle of choice is text messaging and Facebook. This generation is always-on in a virtual-conversation. Privacy is not as much of a concern to them as is the thought of knowing that someone is listening.
Yahoo! Offers sex-appeal and millions of potential opportunities for eyeballs and access for Microsoft. It a way of stepping up the cool factor for Microsoft to ensure that they will be the choice for search, operating system and mobile products for generations to come. The timing couldn’t be better as the first chink in Google’s earnings growth was announced just hours prior. There is a plan and it looks like it may actually work. Microsoft should be able to break out above the recent resistance of $35 if this actually goes through.
Disclosure: Horowitz & Company clients are LONG MSFT
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