**DISCLAIMER*** I am not an financial advisor, I am an IT manager. I have been investing for myself for nearly 25 years. I've made soem very nice gains and I've also been utterly crushed 3 times ('87, Internet bubble, today). Take everything I write with a serious dose of skepticism. ***END DISCLAIMER***
Stay far away from business that rely on consumers spending discretionary income such as HOG. Regardless of how quickly the economy turns around it will be quite a while before folks start running out in droves to drop $25K on motorcycles or anything else that requires a serious chunk of disposable income. People simply don't have any. When houses in the Hamptons and Beverly Hills are getting repo'd by the banks, things are really bad. If those people are losing their homes, who the hell is gonna buy a speedboat?
Warren Buffet said to buy when others are selling and sell when they are buying. One of the things he has been buying lately are financials such as Goldman Sachs. Granted, he has billions of dollars and was able to work out a very nice deal on a preferred stock purchase but the lesson I took away is that if that sector looks good enough for him, why not take a closer look. American Express was recently trading in the $10 range - lower than it has been in over a decade. If individuals stocks are too scary, look into one of the (many) higher quality (TRP, Vanguard, etc.) Financial sector funds.
Other thoughts:
- Anything with any exposure, real or perceived, to this housing/financial meltdown has gotten beaten like a red-headed stepchild. Much of it is well deserved but there is also obviously a lot that has been unfairly thrown into the mix. GE is an example. GE was recently trading in the $6 dollar range, like Amex, as cheap as it has been in well over a decade. That's GE, one of the pillars of the Dow and the US economy, trading at around $6. Much of that beatdown was due to their own financial services division and fear of what might be lurking there. But that section is NOT the bulk of GE's business.
- Real estate. All of it - huge builders, home improvement business, commercial realty companies, you name it - they've all been thrown onto the rocks. Again, much of the pain there is arguably justified. But big builders like Pulte, Toll Brothers, Centex, and KB Homes will most likely weather this storm and once demand rises again and inventory shrinks, they'll be back building huge developments like they have for many years. This won't happen tomorrow but I believe it will happen. Again, if individual companies are too scary, look into a narrow sector fund or even an ETF (Exchange Traded Fund) like, to use a random example, iShares Dow Jones US Home Construction (ITB).
- Foreign stocks are not a safe haven nor a particularly good way to diversify today - this crisis is global and IMO it's best to stick close to home when things get rough.
- Bonds of all flavors range from mildly to wildly out of whack right now - so much money has flown into them that the yields are absurdly low. Today they are basically the refuge of last resort - a way to make sure that at least you won't lose any money even though you won't make any either.
Most of all, expect things to stay as they are now (that means very, very bad) or even get worse before they get better. There are people talking about the economy recovering this year or maybe Q2 2010. Who knows? Not me. But I'm guessing it will be later than that. To my eyes, the entire world economy is skating on the edge of the abyss and might still take a tumble. Even if it doesn't, the damage done here will take a long time (I'd guess over a decade) to really get back to the pre-truly-insane-mortgage period.
In a nutshell, the environment is so volatile that to not believe that there is a very good chance at losing everything you put in today would be naive. You might be better off keeping it in cigars, Andy. At least you can smoke 'em if the world catches on fire
- Tim
