Investing Basics

After a pair of stopgap funding measures, Washington is getting ready to play hardball on the government budget. Both sides have drawn clear lines in the sand, and April 8 looms as the day when government buildings could be officially locked, government employees told to stay home and all non-essential services could grind to a halt. Whether the shutdown lasts a few days or a few weeks, your portfolio will feel the impact. And you need to start preparing now…   Too many uncertainties Investors crave certainty. Yet this is an especially murky time. Key questions need… Read More

After a pair of stopgap funding measures, Washington is getting ready to play hardball on the government budget. Both sides have drawn clear lines in the sand, and April 8 looms as the day when government buildings could be officially locked, government employees told to stay home and all non-essential services could grind to a halt. Whether the shutdown lasts a few days or a few weeks, your portfolio will feel the impact. And you need to start preparing now…   Too many uncertainties Investors crave certainty. Yet this is an especially murky time. Key questions need to be asked. Will Japan’s economy go into recession as its government tackles the economic effect of the current crisis? How will the Middle East play out (and what will happen to oil prices)? Will more European economies need a bailout? How will the U.S. markets handle the end of the Federal Reserve’s second round of quantitative easing (QE2)? [I also wrote earlier about how investors’ record levels of borrowing on margin could bring the market crashing down…] The market has climbed a “wall of worry” in recent quarters, but the wall keeps getting… Read More

Think of the economic cycle as a wheel…     This image roughly captures the whole cycle, highlighting the various stages of economic growth and contraction. Right now, we’re just past “9 o’clock” on the wheel, as commodity prices have been steadily rising (although with some recent profit-taking). We’re surely done with the “8 o’clock” phase, where we saw stocks post a remarkable two-year rally after a sudden plunge. If the current cycle plays out as it has in the past, then more stock gains lie ahead, but perhaps in a more limited… Read More

Think of the economic cycle as a wheel…     This image roughly captures the whole cycle, highlighting the various stages of economic growth and contraction. Right now, we’re just past “9 o’clock” on the wheel, as commodity prices have been steadily rising (although with some recent profit-taking). We’re surely done with the “8 o’clock” phase, where we saw stocks post a remarkable two-year rally after a sudden plunge. If the current cycle plays out as it has in the past, then more stock gains lie ahead, but perhaps in a more limited fashion than some realize. We may be looking at an extended period of economic expansion in coming years, but stocks prices always look ahead and have already anticipated some of that expansion. [For more on how sector rotation can lead you to the right stocks to profit, go here.] The economy has started to sputter back to life, as seen by rising employment figures and positive quarterly gross domestic product (GDP) reports. We’re just about at “9 o’clock,” or “general recovery.” When monthly employment trends really start to… Read More

Warren Buffett takes a seemingly cavalier approach to leadership succession plans. The 80-year-old investing legend likes to insist that when it comes time for him to step down from Berkshire Hathaway (NYSE: BRK-B), very little will change. After all, the Berkshire has a deep bench of executives, all of whom are well-schooled in the firm’s winning investment philosophy. In reality, a change in leadership at Berkshire brings significant risk. First, Buffett’s unique intellectual skills can be hard to replicate. Simply mimicking his approach is not the same as thinking creatively, as he does. Second, even if such… Read More

Warren Buffett takes a seemingly cavalier approach to leadership succession plans. The 80-year-old investing legend likes to insist that when it comes time for him to step down from Berkshire Hathaway (NYSE: BRK-B), very little will change. After all, the Berkshire has a deep bench of executives, all of whom are well-schooled in the firm’s winning investment philosophy. In reality, a change in leadership at Berkshire brings significant risk. First, Buffett’s unique intellectual skills can be hard to replicate. Simply mimicking his approach is not the same as thinking creatively, as he does. Second, even if such a successor were a very solid candidate, it will be hard to follow Buffett’s plain-spoken folksy style that really connects with investors. A successor that lacks Buffett’s charisma may not be able to retain the key relationship between Berkshire and its investors, turning the firm into just another anonymous mega-sized investment organization. Since Warren Buffett dropped hints at a March 21 conference in India that Berkshire insider Ajit Jain could easily assume the reins, investors need to take a close look at his background and style. Could he really fill those giant shoes? A… Read More

It’s been nearly 80 years since economists Benjamin Graham and David Dodd wrote their investing bible Security Analysis. Their book established a framework for value investors like Warren Buffett and David Dreman to make their fortunes. Graham and Dodd’s whole approach was based on one simple premise:… Read More

The era of very low inflation seems to be coming to an end. Food prices started to perk up in 2010, oil prices are on the rise now and, before long, a wide range of companies may need to push up their prices to account for their own rising costs. This can end in one of two ways: with higher — but still manageable — inflation, or it could trigger a vicious cycle of rising inflation expectations that create even greater inflationary pressures. It’s not just about food, oil… Read More

The era of very low inflation seems to be coming to an end. Food prices started to perk up in 2010, oil prices are on the rise now and, before long, a wide range of companies may need to push up their prices to account for their own rising costs. This can end in one of two ways: with higher — but still manageable — inflation, or it could trigger a vicious cycle of rising inflation expectations that create even greater inflationary pressures. It’s not just about food, oil and other raw materials, either. There’s a also a macro-economic concern: if the United States starts to struggle to find buyers for its debt, it will need to offer far higher bond yields, the dollar would come under pressure and imports into the U.S. would be subject to major inflation pressures. Right now, this doomsday scenario is no sure thing. And it would take several years of pressure to really put inflation on the boil. But you need to start thinking about it now, gradually adjusting your investment exposure as any… Read More