Thursday, June 12, 2008

How to survive

To survive today in the investment business entrails two considerations -- first, you must not make any major stupid mistakes. Or let me put it this way, to make mistakes is human, we all make mistakes -- but the disaster is to stay with your mistakes. Once you realize that you've made a mistake, you've got to reverse your position -- get out and the quicker the better ("the first loss is the best loss").

The second task in surviving is to be low on debt or preferably out of debt, and to own something of undisputed tangible value. Some of the items in the "eternal" value category are gold, silver, a home owned free and clear, a great work of art, a few gem-quality diamonds.

If you own a business during tough times, the secret is low overhead. High overhead during hard times will chew up any business and spit out the pieces. I consider debt a form of overhead. You find a way to service your debt or you'll lose your business.

If you're solid and solvent during tough times, you can remain on the compounding path. This entails holding good stocks, and reinvesting the dividends as they come through. Or you can take positions in bull markets on a timing basis. This entails buying stocks when the market is clearly oversold, and selling those stocks when the market becomes frothy.

Right now, as I see it, we're pretty much on the sidelines and awaiting the next great buying opportunity. This means waiting for the next major oversold bottom. Where or when that bottom arrives is unknowable. What we do know (hopefully) is how to identify a major bottom when it finally arrives. In other words, to predict is impossible, to identify is possible, not easy -- but certainly possible.

From DowTheory


Anonymous Debt income advisor said...

I like to add something in your list of surviving strategies and which is really in our hand. That is, we need to manage our personal budget, so we can keep our self out of debt and other financial crisis. This is the only thing we can control.

3:04 AM  

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