Monday, August 8, 2011

Now What???

As the markets take a turn off of Greed Street on to Fear Avenue (which started in April ), it's time to pull-over to the slow lane and watch the traffic jam. People are running for the exits. The S&P downgrade has spooked the market. It's important to note that the other rating agencies like - Fitch and Moody's don't feel the same as S&P. The CBO ( Congressional Budget Office ) has commented that S&P has made a 2 Trillion dollar "mistake" in their 10 year calculations. But S&P's downgrade/outlook is for the next 2-3 years -what gives? You would expect the rating agencies to have a longer-term outlook for a sovereign like the U.S.  At the end of the day, you have to ask yourself if the companies in your portfolio are really worth 15%-20% less now, then a couple of months ago. In most cases they are not. It's also interesting to note that Carlos Slim ( currently the richest guy in the world ), made his mark by buying  businesses AFTER the 1982 Mexico debt default (not downgrade, but actual default). Businesses still have value that on the whole, will increase over time. As I wrote recently, it's good to have cash. There are now many high quality companies available at discount prices. But, you have to move slowly, as not to get run over. So now is not the time to go "all in" but just pick away. With the current market conditions, it is also a good reminder why it's important to have an unlevered ( little or no borrowings against your portfolio ) account. It's time to sit tight, with no bothersome calls from your broker's credit department, and pay close attention to the price your paying for stocks. There is no hurry - move slowly.

Remember Buffett's quote: " the market is there to serve you, not instruct you"

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