Another odd day for the markets as we saw some last hour selling
once again take us well off the highs of the session. This pattern
may not be a big deal in the short run, but certainly worth
Looking at fundamentals news - i.e. earnings, Chesapeake Energy
) and Emerson Electric (
) were higher following their reports. On the flip side, shares of
Vornado Realty Trust (
) and CVS Caremark (
) closed in the red on their numbers. Shares of Coach (
) gained another 2%, likely putting a hurting to shortsellers that
got excited on the company's uncertain guidance for 2013.
Short-selling is a tough part of trading as many get burned trying
to catch the top of a stock's move where valuations come into
question. The idea is to identify stocks that are wounded as Coach
appeared to be last week as far as earnings guidance was concerned.
But this market has continued to frustrate those who choose to play
the other side of bullishness. Hence the frustration for traders
these days who get burned when stocks plummet on good news and
rally on bad news. The solution: Don't trade!
School District Bets It All on the Now
There is a big story coming out of the Poway school district in
San Diego, California. Apparently school officials decided spending
$105 million to revamp/repair its schools was worth paying back
$981 million over the next 50 years in order to do so. Instead of
raising taxes or floating a school bond (which would hurt
politicians' efforts to get re-elected), officials took the advice
of a consultant who pitched a controversial loan called a capital
appreciation bond, with the carrot being the district not needing
to pay any interest for the first 20 years of the loan. Sounds
great right? How about in 20 years, when the district will start
paying $50 million a year in payments for the loan!
The hope is that property values and assessments will keep
rising over the next few decades so property taxes can help cover
the nut. Prices would have to quadruple in order for this to
happen. Anyone want to take odds on that happening? Why even risk
it? That answer is easy. Because politicians and school officials
will "kick the can" as far as they can if it comes to benefiting
their career in the here and now.
If you are truly to be a smart investor, you can never take
gambles like this. You may feel good in the short run when
potential payments look manageable and the assumption is that the
asset you acquire will assuredly go up in value. Many a great
investor that has taken this road at one point in their life or
another has lived to regret it and when it has worked out, they
almost certainly swear they would never take such a gamble again.
Investing is a numbers game in addition to other risk/reward
factors. When you pay for future appreciation in any deal you are
in, the odds begin to grow against you. It happens often in the
real estate world when someone wants to own a particular "trophy"
property. There is always some savvy investor just waiting in the
wings when the numbers begin to pressure those who don't do their
homework. It's no different with stocks. People buying what they
perceive as great companies today are making a bet that the good
times will continue. The future is never certain, but if you
identify the best-positioned companies that can continue to deliver
great results and stay relevant, your investment returns will beat
many an expectation.
The example above is all around us. The Poway school district
will not be alone in mortgaging the future of taxpayers. Plenty of
others will follow, but the hardships will soon be felt in time as
those remaining in that area will bear the tax shock heading their
way. Let me end it by saying taxpayers in the Poway school district
could have voted against the measure, but in the end, the sales job
was too good because enough individuals were enamored with the
short term fix and had little consideration for what the financial
ramifications would be years from now.
Income, Income, Income
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. Also, if we see the market putting in what looks like a decent
bottom, we will be prepared to scale up the list of stocks we like.
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