2016: Nothing worth having is ever easy!
Money can be tricky – to get an investment decision “right” you need to have both the fundamentals (is this a good business and/or opportunity) and the timing right. Do you recall the “terrific” investments made in the early 2000s? How long was it before the bad timing wore off? For some investors it never did, they had to sell or use the money before the investment had time to recover.
Timing versus luck:
For an investor receiving new money in 2016, the timing on the receipt isn’t something you may be able to control. To some extent your timing is about luck. By way of example: were you fortunate enough to receive and invest money in mid-2009 or did you receive it in 2006 only to watch the next 3 years unfold in a very stomach wrenching way?
Most investors cannot contain the emotion of bad luck. Internalizing luck, good or bad, is a mistake. The world of money and the course of nature isn’t picking on you -it just happened.
The issue leads to fundamentals – or the underlying strength of a company or investment – and how bad timing/luck can cause you to react emotionally to today’s circumstances instead of fundamentals. Do not do it!
Always have enough liquidity to prevent emotion based decision. More importantly – always have a clear line of sight on the fundamentals. “See Clearly!”
Let’s look at two quick examples to demonstrate this idea:
Why does anyone think China will NOT be able to navigate the long term waters of transitioning to a services economy? After all, they raised the standard of living of over 1.4 billion people from $253 per capita in 1990 to $8,280 in 2015¹. The comparable U.S. stats are $23,954 and $55,904 with 319 million people. Will they execute on their plan of achieving Reserve Currency Status and becoming The Largest Economy in the world? Like it or not, they will.
The timing will be on their schedule as opposed to Wall Street’s. The fundamentals: demographics, 773 million hard working aspiring people as of year-end 2014 and the alignment of the leadership, all bodes very well for a positive long term fundamental view. Timing, especially considering this past week, can and will be unnerving. Fortunately if you consider China a long term holding, now is the time to add to your holding (see timing versus luck above).
Another example: an investment in Ford Motor Company (NYSE: F) at $17.5 per share in July of 2014 looked good². The company had a 4% dividend yield and car sales were about to go through the proverbial roof (all-time high of 17.4 million in the United States in 2015). Today Ford’s stock is at $12.6 per share and paying a 4.5% dividend.
Now it’s 2016 and you have more money to invest. Will you put it into Ford? Maybe. The 4.5% yield is high enough to attract new money, or perhaps you can diversify in the sector and buy BMW (ADR: BAMXY) or General Motors (NYSE: GM) – both have good yields. Keeping your time horizon in mind, how does the new purchase effect the other assets you own? How important is the dividend income? Timing on the first purchase wasn’t good based on today’s price but how will buying today look two years from now?
So, how do you handle new money in 2016? Slowly, deliberately and with a plan. Judging investments in hindsight is easy. However and more importantly, how do you see the future and how does your view fit with your Financial Assets and what you want and need from them in the future?
Ready for a review of your investment portfolio?