Monday, September 28, 2009

Last Investment Thought of September, 2009

If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?

This is a fruitful weekend. I watched Ken Burns' new spectacular – “The National Parks”. You have to admire the wisdom of the Americans designing such a wonderful system contrasting to the park system elsewhere. A friend just back from China told me the abusive fees charged by the Chinese parks. I also visited the Polaris Mall Sunday afternoon. I was pleasantly surprised by the traffic. I saw no signs of recession at the mall. Although the recession certainly was not over as I continued to see little traffic in the local casual dining restaurants, my spirit got lifted.

Will the rally continue? Should I buy now or should I wait for a dip? Those questions always get asked. For the first one, even the prominent investors I always admire don't have consensus. Last week, James Grant of "The Interest Observer" penned a piece on Wall Street Journal arguing that the harder the market falls, the higher the rebound jumps. Therefore, the loss of 2008 is so horrendous that it enable the bouncing of 2009 to keep propelling. John Hussman, among others, continue to hold that the current market is overvalued on his weekly comments. And Warren Buffet contends that while the businesses stopped getting worse, he doesn't see a quick recovery.

For the second question, it is a more practical one. As Buffet insists on no recovery, he is buying stocks on the same day. He buys regardless of the interest rate outlook, general economic condition or the likelihood of dips. As long as he feels he is financially flexible and he can find something cheaper than its intrinsic value, he buys. We should do the same.

Humans are always tempted by the unpredictable and the uncontrollable. Some want to find the most complex schemes to hedge. They believe US dollar will continue to devalue against Chinese Yuan. But if you earn US dollar and spend US dollar, why introduce currency risk? Even if you are right, how do you know the devaluation of US dollar against Chinese Yuan will be disruptive enough for you to earn satisfactory return? Are you going to use leverage to add more layers of risk? Some use the stop loss order at, for the sake of argument, let's say at 8%. I always wonder how we know if a stock drops exactly 8%, the next move it makes must be downward.

For me, as long as I have enough cash at hand, by "enough", I mean if I have 5 years' spending cash, and I can find attractive opportunities, I will keep buying.

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