Why do You Invest?
Reseach for Online Investors

by John Dalt

12/03/09

My wife keeps telling me to buy stock in TJ Maxx (TJX), as she shops in their stores, and believes they run a good operation.  I have looked but not touched, as they do not fit our investment profile.  We have Walmart (WMT) in the retail sector, currently up 9% and they pay a better dividend.

TJX was taken to the woodshed today after November sales increased 8%, expectations were for a 9% increase. I can’t say it is fair, it is what it is.  Traders are easily spooked.  No doubt, traders had played the stock for a bounce, and were caught in a crowded trade.

I mention this because of two emails from subscribers.  One subscriber to our Long-Term Portfolio was upset with our recommendation to buy Walmart earlier this fall.  Our subscriber didn’t like the idea of owning Walmart.  He had some concerns about their business.  The second email was from a subscriber who manages her family’s investments.  She is scared of equities and moved to a guaranteed principal account.

Our job in managing money is to seek investments that will return the most gain with the least amount of risk.  Generally speaking, a high beta stock that may increase our return also increases risk, and vice versa.  That is why we diversify our portfolio and use trailing stops.  I would also add that buying dividend paying ‘blue chips’ increases gains while actually lowering the risk to your principal.

The stocks that fell the hardest last year were the high flyers.  As Warren Buffett quips, “It’s only when the Tide goes out that you find out who’s been swimming naked.”  Blue Chips with solid balance sheets lost value last year, but not at the percentage declines seen on the ‘naked swimmers.’

We did not buy Walmart at its lowest price this year.  An important part of our disciplined approach to investing is to recommend one stock every two weeks.  Then it may take some time before we actually buy the stock, because we want it at our price.  That is ok, we will wait.

I talk to a friend, who manages money, every week.  Most of what he does is sit and wait.  I respect him; he waits for the trade to come to him.  He has been at it for over 30 years, and does not chase trades; he knows another opportunity will come.

Why do you invest?  Answer this question, write the answer on a piece of paper.  One of the best investments you can make is a small notebook.  Write down the reason for every trade or investment you make.  Do all of your trades or investments fit your stated goals?

It seems to be a slow day today, as Bernanke appears before a Senate Confirmation hearing.  His appointment to the Federal Reserve must be renewed by January 31, 2010  The problem for Bernanke is he has many recorded comments from before the credit crisis that come back to haunt him.  One such statement from his previous confirmation hearing was his perception of the four duties of the Federal Reserve.

He spoke of the importance of providing stability in the financial system, supervise the nation’s banking system, manage monetary policy to support maximum employment, and price stability.  Senator Shelby asked him, “How have you done on these missions?”  The air went out of the room.

At one point, Bernanke said, “Dollar purchasing power has been stable.”  Wow, that is like saying a diving plane is on a ‘stable’ path to the earth.  As reported here in the last month, the purchasing power of the dollar has sunk 35% in the last 10 years.  Bernanke may be a good man, but bureaucrats are rarely put out to pasture for failure.  It would just add to the unemployment rate.

Maobama convened a White House Summit on unemployment today.  Politicians feel the political pressure to ‘do something’; of course, it never occurs to them to do nothing.  Don’t extend unemployment insurance, don’t increase federal spending, don’t raise taxes, and don’t increase regulation.

These are all the actions the current yahoos in Washington have done in the past year.  Unemployment insurance keeps people from taking jobs, why would you work when you are paid to stay home.  Increased government spending means bigger deficits that require borrowing, which will increase interest rates for business loans.  Raising taxes takes money away from productive taxpayers.  This money is the ‘grease’ that will get the economy moving again.  Lastly, increased regulations put up barriers to new businesses or expansion of existing businesses.  Why increase the compliance costs on business when you want them to grow and hire people.

The important concept, that politicians cannot understand, is that business hires people to leverage their work to make profits.  If government impedes the ability of business to make money, why would business hire anyone?

It is a good thing they invited labor unions and academics to come up with some fresh ideas.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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