With the Dow Jones Industrial Average down 17.36% year-to-date, folks are pretty jittery. They should be. Blue chip stocks such as Fannie Mae and Freddie Mac are about as close to belly up as a company can be. Back in the old days, a person simply “sat tight” and waited for the market to rebound. Sitting tight might not work so well this time around.
The Vanguard Index funds of the world aren’t doing so well.
Here is what I recommend.
1. Stay away from financials. Just because they’re cheap does not mean they won’t get cheaper.
2. I have some of my growth accounts invested in the money market at a rate as high as 45%. These accounts are holding up much better than the stock averages this year.
3. Stay away from oil stocks. Oil came down today and probably has more to go.
What investments do look attractive?
1. Glaxo Smith Kline and Sanofi Aventis. Two European drug companies with dividend yields of 4% to 5%. Also a big pipeline of drugs that will be company onto the market in the next few years. Warren Buffett owns both.
2. Japanese companies. Keyence and SMC are two companies where the cash on the balance sheets equal about 1/3 of the stocks’ prices. Furthermore, they have almost doubled their sales in the last five years. Keyence does not have an ounce of debt.
3. Consider looking at money markets backed by US government T-Bills. They only yield about 2%, but better a low yield on something that is guaranteed.
Not all money markets are guaranteed.
Some stocks and stock mutual funds are worth holding onto and some are worth getting out of. The hard part is knowing the difference.
Holmes Osborne