If you’re like me - afraid to margin, afraid to bet the market is going down, and afraid that you’re not going to be able to pay for [insert large expense here] - boy, have I got an all or nothing strategy for you. I’m pretty much putting my neck on the train track lines in anticipation that there is hope and money to be made.
Getting into this mess was surely the easiest thing I’ve ever done. I just bought undervalued growth companies. But good news - these are the types of companies that are sold most when recession and depression fears spread like wildfire throughout the global marketplace, driving oil speculators home to their mommies and daddies.
I recently had the pleasure of seeing Ben Stein visit Purdue. He cited two steps to fixing this economic mess.
- Have a New York Court determine that Credit Default Swaps are illegal and void of any value.
- Have the US government do what the European governments have already done --- and give 3 year guarantees on inter-bank lending.
Ben Stein was asked what he’d be doing if he was young; he’d be buying stocks. He’s never seen fear like this and he always asked his dad what would happen if something like this current credit market mess was going on and his dad advised that the government would step in. Unfortunately, it let Lehman fail. And here we are today.
What am I doing? I’ve been on a 3-step program. First, I started with a portfolio of undervalued growth companies, fairly diversified. Second, as markets started getting crushed, I slowly began pushing more money into the markets that are rocketing down the most that I felt shouldn’t be. Lastly, I’m actually selling stock --- and buying long options that expire January 2010 on the stock I’m selling. I generally am only doing this if it makes sense and the company re-affirms and/or keeps up with its expectations. Three companies have caught my radar for this switch: Kinetic Concepts (KCI), Bucyrus (BUCY) and Central European Distribution (CEDC). Only CEDC got the call though, because the calls are severely under priced.
This type of bullish strategy isn’t for everyone, and it’s always a slow transition. I expect that it is within reason for the market to go down even more from this point. As it does, I will keep leveraging up. It’s my statement that I believe there is a bottom.
Disclosure: I am long KCI, BUCY, CEDC