Sosnoff: You Have To Bet Against The Grain To Make Real Money Polonius, Lord Chamberlain to the bad king in Hamlet, advises his son, Laertes, headed for Paris, "Neither a borrower nor a lender be. For loan oft loses both itself and friend." Well, I've loaned serious money to friends but always put strict covenants in place. A doctor friend needed capital to get his yacht out of the boatyard after a major overhaul. I gave him the money but stipulated he had to sell this money guzzler and replace it with a more modest play thing. He did so and lived happily ever after. Anyone who doesn't borrow money with interest rates so low is missing out on a good thing. Maybe in 1946, when Wall Street expected a big postwar recession, you could take out a home mortgage around 4%. Today it's 4.6% with few takers. The Affordability Index for housing is off the charts. It plots home prices and cost to carry. The rate of interest in my margin account, tied to LIBOR, is just 1%. I use it to leverage myself in preferred stocks and high-yield corporate debentures, which most institutional investors are hesitant to buy for clients. After all, bonds do get downgraded in a recessionary setting and bank preferred stocks in the spring of 2009 sold on par with their common stock. Individual investors remain risk averse, but don't know where to go for yield. You could fill two Yankee Stadiums with all the investment counselors, advisors, security analysts and economists plying their trade on and off Wall Street. The SEC labels me an investment advisor, but I think of myself as a money manager for my clients and as a professional speculator in my own account. I take extremely concentrated positions in stocks I believe carry price elasticity like In March of 2009 banks were the equivalent of airlines without TARP assistance. Airlines are too small not to fail, but you could buy banks for clients on the "too big to fail" thesis, which proved correct. Decisions that are most difficult to make turn into doubles and triples. If Daily, I must get a foot of Wall Street mail. Much of it is maintenance research, which I scan to stay current. Another chunk of paper carries stock recommendations- This is the Street's chatter, what I call its noise level because it can't make you rich. Another kind of chatter covers price points. The same discipline goes for the bond market. Consider your view point on inflation, GDP momentum, Federal Reserve Board policy emphasis, worldwide GDP growth and the supply and demand for funds is as good as anyone else. Believe me, the market rarely gets it right. A few months ago, the bond crowd expected FRB tightening by yearend with 10-Year Treasuries yielding 4%. Economists and the bond crowd just pushed out credit tightening to year end 2011 with 10-Year paper ranging as low as a 2.5% yield. Almost everyone has taken down his forecast on GDP growth from 3% or more to 2% or less. I agree with this forecast. The consumer is running scared over unemployment numbers and our near dysfunctional Congress. President Obama appears too much a populist for the headman at The Obama administration' I vote with the "nots." Obama is too smart to polarize the country. If GDP sloughs off next year and unemployment sticks near 10%, we need another stimulus package for which there's no support in the Congress at present. The analysis of BB and single B corporate paper is a professional' Meanwhile, rating agencies, excoriated for their role in blessing tainted mortgage-backed securities, are quick to downgrade credits and prefer to lag on upgrades. All this creates opportunity. I'm loaded with single B and BB paper, still adding names in the industrial sector and attaining yields over 7% to worst call provisions in the debentures' indentures. The spread between 10-Year Treasuries and this paper is 400 basis points, which is good enough for me and holds up historically on my charts just so long as recession doesn't overtake us. Curiously, even with the more muted economic forecasts now in print, spreads haven't widened one bit. Preferred stocks, particularly bank paper, rallied big last week along with Ford's convertible preferred, a great gaming ticket if the economy gets its second wind. Double- dip recessions are few and far between. Polonius, cut from the same cloth as our current politicians and statesmen, emoted in his prescriptions to Laertes, his son: "Give thy thoughts no tongue," he says. I've always acted otherwise, with spontaneity, unafraid to express myself in words or actions. "Beware of quarrels, but once in one be steadfast," says Polonius. At least in the marketplace, once I have conviction I'm looking for quarrels with the consensus. "Costly thy habit as thy purse can buy, but not fantastic, gaudy and rich." Blabber-mouth is talking about clothes here. "For the apparel oft proclaims the man." This is nonsense. Most operators work in jeans and T-shirts. I go to work like a homeless person. In short, Polonius tells his son to be careful talking to people, dress well and hold on to your friends but don't lend them a cent. I give him credit for the line: "This above all: To thine own self be true and therefore (thou canst not then be false to any man)." But Polonius spoils all this. He sends a functionary, Reynaldo, to spy on his son in Paris, ever the statesman covering his bases. Polonius would have made a lousy money manager: too cautious, well-dressed and unventuresome, always playing life close to the vest and babbling, babbling, a meddling windbag of opinionated eloquence. In money management you are what you do, not what you say or think. Ours is the ultimate existential existence with exhilarating highs and ego crushing lows--so be it! Polonius mouths the phrase, "brevity is the soul of wit," but can't be brief. Even the queen grows impatient with him, saying "more matter with less art," a great one liner. I came in under 1,400 words here-in, as brief as I get. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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