How the Apple Investor Will Succeed in 2009
First of all, let me wish everyone a Happy New Year and my sincerest wish for your good health and prosperity in the year to come. Also, I want to let you know that I have fully recovered from my bout with pneumonia, and plan to resume the Apple Investor podcasts next week.
Many of the Apple Investors in the Wilderness survived, weathered, or cushioned the crash of 2008 by taking a predominantly defensive cash position. All this past year, but particularly starting in July, we’ve been professing Capital Preservation over all else. And in early September, just before the whole house came tumbling down, I implored people to listen to what the market was telling us, that it was heading for disaster. There was no special insight that I had over others, many people saw this coming, some knew that the financial and housing markets were heading for an imminent collapse back in early 2007.
Here we are, starting anew in 2009, hoping to put aside the worst year in market history since 1931. Last year the Dow Jones industrial average fell 34%, the Standard & Poor’s 500 index lost 39% and the Nasdaq composite index slid 41%. And of course our favorite company, Apple declined an incredible 57%!
It seems surreal that a company, that is in all respects the defacto leader of the technology sector, and a vibrant example of strength and innovation, yet it was so beat up in the market, there’ do doubt a stark disconnect between Apple the company and AAPL the stock. How does an investor reconcile this disconnect and make intelligent decisions going forward, if there’s such a disparity between fundamentals and market performance? If I had the definitive answer to that question, I wouldn’t be writing this post, my wife and I would be taking in the dulcet sights and sounds of a tropical beach somewhere.
There are strategies you can employ that will get you closer to your personal nirvana, even in such turbulent and confusing times. The first thing you need to do is a reality check, then second is to draw on your common sense. So the reality is that we’ve just come through the worst market in 85 years, and things aren’t going to get better in the near term, perhaps not even until 2009 is over. In fact, most are predicting that the economy will get worse before it gets better. Now that’s a sobering reality that can be difficult to fathom, but you must if you want to profit. And why should you expect anything different? After the crash in 1931, the markets continued to struggle for several years.
Has our government and Fed learned anything since then that will help us avoid a repeat of that pattern? I don’t think so. In fact I think they are all clueless on what to do, and that these bailouts are a shot in the abysmal dark. The Fed has no idea if throwing billions, no trillions, at the problem will make it go away. There’s no precedent, there’s only wild speculation.
Ok. Now’s the time for common sense. We got ourselves in this mess because we borrowed ourselves to the brink of disaster, now we are hoping to rescue ourselves by borrowing magnitudes more. Huh!?!? I know the economy is a complex thing, way beyond me or any other individual to understand, but let me offer this bit of common sense. If you maxed out all your credit cards, bought a house that was five times more expensive than you could afford, then squandered any ability you had to pay it all back, what would you do? Take out another loan, or maybe max out another credit card? Are you friggin kidding me?!? All this is doing is pushing the hurt further down the road, and making it bigger, way bigger than what got us in the mess in the first place.
Think about it. How is expanding the deficit by unimaginable proportions going to get us out of this mess. Do we simply go on the assumption that foreign countries will just keep financing our debt by buying our bonds? And what’s going to happen as the value of the dollar starts declining because of this debt. Are we to assume that people will be Ok with buying 30 year treasuries, and clipping coupons for 1% or 2% will work while inflation eclipses that at 5%, or even higher?
Ok. Back to common sense and some more reality. Last year the sub-prime mortgage bubble burst, this year, the ARM mortgage bubble is going to burst, and it will be as big, if not bigger than the sub-prime bubble. So, we know there’s going to be even more hurt and a further devaluing of the dollar. So, is cash the right thing to move towards? Are equities in US companies the right place to put your money? You might make some gains in the near term, but what will it be worth later on, when inflation from our drunken borrowing kicks in? The answer is very little.
In the near-term, I think certain technology companies, like Apple, and health care companies will provide some gains. Also, any discount retailer, like Walmart or the dollar stores. But as time passes, and unemployment grows, and we throw more money at the problem, inflation is going to rear it’s ugly head. And at that time the only thing worth anything will be commodities, like gold, silver and the basic materials that we need to produce things, that will feed people and build things.
So, my strategy is to take advantage of any near-term rallies that we might have to relieve the oversold conditions created by the crash, then migrate those positions to commodities by the first quarter.
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