Streetwise
Lauren Rudd
Sunday, May 30,
2010
A Remembrance for Memorial Day
Memorial Day is upon us once again. For many it will be
simply a day off from work and a time to drag out the barbeque grill for the
season’s first summer party. However, for others it is a somber reminder of
friends who sacrificed their lives in the name of freedom.
Regrettably, the devastating impact of armed conflict has a
way of fading from memory. Few are left who can recount the untold horrors of
the Holocaust. A younger but graying generation pushes remembrances of the
sickening sweet smell of Napalm and burning flesh ever deeper into the dark
recesses of their minds.
Nonetheless, the jarring impact of seeing young soldiers with
scars on their faces and missing limbs not only unleashes a gushing torrent of
emotion, but hopefully will also act as a constant reminder of the seemingly
never ending violence and bloodshed that takes place across the globe in the
name of security, peace, tranquility...oh, and yes religion.
If you saw Vietnam, Afghanistan or Iraq regurgitate the
remains of your friends and classmates then Memorial Day cannot help but be a
day of sad remembrance. Nevertheless, for all of us it should be a time to
remember and honor those who have been called upon to make the ultimate
sacrifice.
You are probably wondering how those comments relate to
investing on Wall Street. They do not...except to point out that in today’s
turbulent world it is important that we focus not just on what we want but also
on what we can give back.
Traditionally this is also the time of the year when I
discuss the subject of when and what to sell. For example, simply holding
unrealized profits is never a reason to sell. Too often the subject is exploited
with erroneously general terms such as, "the market is going up, sell," or "the
market is going down, sell."
Deciding when to sell is difficult and I would be the first
to agree that it often takes super human strength to decide the matter
dispassionately. Given that it is Memorial Day weekend, may I once again suggest
you contemplate the words penned over a century ago by Catherine Lee Bates in
the song, "America the Beautiful." She wrote, "Confirm thy soul in self
control."
Furthermore, the past two years have unmercifully
demonstrated the need to reevaluate a multi-year buy and hold strategy. At the
same time, continually turning over your portfolio will often result in
profitless whipsawing. Never let others, especially those who stand to receive a
commission, make the decision for you.
Instead, take your queue from current economic trends as
evidenced by the data in ongoing stream of economic reports. You then translate
those trends into specific sectors from which you then select your candidates.
Keep in mind that a portion of any unrealized profit belongs to Uncle Sam. As
long as you do not sell, you can continue to use his money to enhance your
gains...interest free.
Now I know what you are asking yourself, what do I currently
recommend selling? At the moment, nothing...although I must admit BP is tempting
given my complete disgust with the company, its management, its ethics and its
unadulterated greed. The economy is on the road to recovery and will remain so,
despite the difficulties in Europe. Therefore, now is the time to be buying, not
selling.
Recently I had the dubious pleasure of facing down a coterie
of investors clinging to what I will politely call “far right” leanings. No, I
do not believe we are heading for a double dip recession. No, Treasury Secretary
Geithner and Fed Chairman Bernanke are not the Antichrist.
Nonetheless, caution is advised. Unemployment will decline but slowly. It takes
about a 2 percent increase in GDP to reduce unemployment by 1 percent (Okun’s
rule of thumb). If you have a bond portfolio, keep the duration relatively
short. Interest rates will begin to rise but probably not until early 2011.
Inflation is and will remain subdued. However, without the enactment of strict
financial reform, we will simply rewind the film and play the movie over again.
Popcorn anyone?