As I read the
financial oracles' pontifications about the coming year, I notice that there is
a generally negative tone to their predictions. From today's Seattle Times
alone you can read: "Real
Estate Anxiety: What's Next in '08", and
"'08 Forecast: food at least 3% higher; gas up 10.7%", and in the
business section there is a half-page article titled "How
you could ride out a recession". That's negative! Do I necessarily believe all of this
pessimism? Not really. As is true in any year, there will be sectors of the
economy that do well, and others that suffer, but I'm not quite ready to start
stocking MRE's in the garage anticipating a global financial collapse. Here's
what seems reasonable to me:
The stock market
will continue to be choppy until the subprime lending issue is completely
sorted out.
The Fed will
continue to jigger with interest rates as the lending situation is resolved and
that will scare investors into and out of various financial vehicles until
things stabilize. The movement of capital will precipitate the volatility
mentioned above.
The real estate
market will continue to cool and that will shake out people who got in late and
probably shouldn't have been in in the first place. Foreclosures will continue
to rise until all of the suckers are dumped by the wayside, shorts in hand, wondering
how Carleton Sheets could have been so wrong. This will, however, create
opportunities for well-capitalized, experienced investors ready to take
advantage of their mistakes.
With the dollar
remaining weak it makes sense to continue to diversify overseas. I don't have
the time to do the requisite research to find individual companies that make
sense for what I need, so I'll continue to use international stock index funds.
Since Berkshire is
moving into the muni bond insurance business, it might make some sense to
examine munis as a pure asset play rather than as an income vehicle. As their
payouts become more certain, their values would increase and the yield would
decrease; so remember what you learned
in Econ 101 about the inverse relationship between bond valuations and their
yield and act accordingly.
Apple will continue
to innovate and Microsoft will continue to chase its tail. A lot of
chest-thumping has occurred in our area over MSFT's 30 percent run-up in 2007,
but Anthony picked AAPL for his portfolio last spring has ridden it from $83.00
to $200 in the same time frame. Why? He and I watched Steve Jobs announce the
I-Phone on the internet and he wanted to own one. I told him that he was too
young to have an I-Phone, but he could own part of the company that makes them. His face lit up immediately and the next day
he was a shareholder. Admittedly, not all of his picks have worked out that
well, but the money that he has made with AAPL has more than offset his
missteps. For example, early in 2007 he picked SIX (Six Flags Entertainment),
because they owned a nearby water park
at the time. Unfortunately, their share price plummeted and he learned the hard
lesson that not all stocks go up after you buy them. I'm glad he's learning it as 6 and not at 26
or 46.
Maria is very
entranced by Disney Princesses so one of her principal holdings this year has
been DIS. As a result of her growing DVD collection, we decided that Dreamworks
(DWA), might be an interesting one for her to own as well. So she has take one more step toward becoming
an entertainment industry mogul as she is the proud owner of 3 shares of
Dreamworks SKG.
Their portfolios are
rounded out with Costco, Walgreen's, Starbucks, and Target. True, they are
overly weighted in the retail sector, but the goal is more about teaching them
different ways to save their money than just putting it in the bank and earning
2 percent. We'll teach diversification when they're 8 or 9, I think they'll
still be ahead of the curve.
I hope all of you
have a very prosperous 2008, no matter what the harbingers of financial gloom
might say.
Recent Comments