Tuesday, April 14, 2009
(Cont'd from above)...

Jim (cont'd):   

I got skewered for going on “The Today Show" before trading on the Monday for the worst week of the history of the market… telling you to sell anything that you needed to pay for any big expense over the next 5 years… I said that we were facing an awful market… and you didn’t want that money tied up in stocks then… people came after me calling me reckless and irresponsible… yelling fire in a crowded theatre… in retrospect it was probably the second greatest call of my life after going into cash the day before the crash of ‘87... there are legions of people telling you to stay in stocks no matter what… telling you to buy and hold… as if holding stocks and not making money in stocks is the entire point… maybe they just want to keep your assets…it is absurd… never be afraid to sell when things look like they are heading the tubes… never… just don’t sell everything… this is the important point when ever the market is lousy… if you need the money short term, yes sell what you need… when it is lousy… when it is good you don’t have to… and I will tell you when it is lousy… that is what I do… I tell you it is lousy… I hold up this (the bear)… it is kind of like when you go to a drive in theatre and it tells you to go get a hamburger, go out into the lobby, it is in your head… the word is subliminal.

Try to sell into strength when we have it… don’t panic and dump everything at the bottom…. but please, if you think stocks are heading down and staying there for a long time… why wouldn’t you sell… who wouldn’t… I mean all of the people who come on TV are either trying to gather your assets or keep you in their chains… who tell you not to… I am only telling saying sell when you need for the long term though… because even the worst markets, especially the worst markets, there can be good buying opportunities for the long term… I mean in 1981 everyone told me that the market was never going to come back… I mean I made a fortune, okay.

So, how do you tell the difference between long term and short term money… I talk about your two portfolios… your discretionary portfolio, which is about investing, you put together some extra mad money to augment that paycheck… and help you buy things for you and your family… and then there is your retirement portfolio, this is an extreme portfolio… this is about one thing and one thing alone… and guess what that is… unless you are retiring within 5 years and it looks like we are headed into an awful bear market, you still want to keep your retirement money, at least a lot of it in stocks… that doesn’t mean that you shouldn’t sell to sidestep a big decline if you see one coming… but it does mean that once the decline happens you should put that money back into stocks… the great Peter Lynch, who used to run money at the Magellan Fund at Fidelity said that there are only a few days a years where all of the money is made… so if you take all of your money out, you might miss one of those big days… but that money should be earmarked for the market always… if you are retiring 20, 30, 40 years… chance to buy stock at Dow 8,000 could be a pretty good long term opportunity… even in the short term, it takes them a long time to start bottoming… to start coming back… you don’t mess with your retirement portfolio… even if you think a financial Armageddon or a second Great Depression is upon us… you could move a lot of your money to bonds… although, in general I tell people that your retirement portfolio should be more stock and less bonds… because it is very hard to make a lot of money with bonds.

Now, when it comes to your discretionary portfolio, if we are headed into a really ugly period… in that case you might want to sell and take your time coming back… don’t get me wrong… it is still possible to make money even in the worst of markets… I don’t recommend short selling on the show, that is not my job… but possible and probable are two different things… when the market looks like it about to get really bad… you might want to up and run with some of your money… but you should keep some of your discretionary portfolio on the table if you can… as an asset class… as a great asset class that over every 20 year period has done well… even though in this 10 year period it has done poorly, okay.

So, what should you sell.. if you are looking to buy a house over the next 5 years, the money that you will need for that… I am telling you that you might not want that in stocks… stocks aren’t reliable… you need to pay for your kids college tuition… maybe you want to take that money out of stocks… if you think that we are headed into a serious downturn… need to buy a new car, and I stress need here because when times are tight you don’t want to splurge… take that money out of stocks, put it into cash… it is not a sin… some people, the buy and hold fanatics… the people who always criticize me and just feel that my show is the worst thing that has ever happened to them… they tell you that I am contradicting myself… but there is no contradiction between disliking the market short term and still believing that high quality stocks are the best way to make money, the longer term… we go thru bad spells… it has happened before… it will happen again.

Remember, when I got in… I got in in ’81... there was not a soul who told me to get into stocks… I went and applied at a job at Goldman Sachs with about 10 other people… 10 years later there was 10,000 people trying to get in… sometimes it pays to go against the grain.

Bottom line…

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The Bottom Line!:     When the market makes us all bear meat… you need to know what to do… what belongs in cash and what money should stay in stocks… even if the market is beating you into a pulp... When times get tough, you’ve gotta know when to stick around & when to get out... Yes, surviving this market is one difficult place… I need you to know the difference between short and long term money… and I need you to know that it is not a sin to sell… despite what everyone else in America ever tells you to do.

[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    Hey, I am wondering will a buy and hold strategy still work over the long term?

Jim:    Buy and homework works… now when my late grandparents portfolios were given to my parents they were filled with utilities that had nuclear power plants where they were wrecked… utilities thought to be really safe, and almost every single one of them was about to go under or they were paying no dividend… the next generation decided that the only thing that mattered was the drug stocks… that drugs could never go wrong… well, look what happened there… drug stocks have not done anything in years… then there was the next generation and it was all technology… every single of these we were taught to buy and hold them… and every single time it was disastrous… had we done the fundamental work we would have realized that we had to sell… the industry is not set up like that… the industry thinks that I am a mad man and I am a traitor… and you know what, let them think that… why do I have a show… why do people watch the show if I am so wrong all the time… I think it is because I am right and they are wrong.

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Q:    I don’t have a lot of money to invest at a one time, I am talking about $400 or $500 every 3 months. Am I hurting myself by buying stock in such small lots, should I be saving it longer and buying in larger lots?

Jim:    No, no, no, no… this compounds, look we could be talking Berkshire Hathaway… I have a friend who bought 3 shares of Berkshire Hathaway over the 80’s and the 90’s… well, now Berkshire is not a great stock, but it made a lot of people a lot of money… I am not saying that you may have the next Berkshire… but Home Depot in the 80’s, you bought 1, 2, 3 shares… Viacom A in the 80’s you did great… Limited, there are lots of stocks, Comcast… lots of stocks that if you just get started I am telling you that you are going to do the right thing.

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Q:    My wife and I are 10 years out of retirement. We are currently positioned 100% in cash. What would you recommend our short and long term investment objectives be?

Jim:    First of all, you are 100% in cash so congratulations, that is a great, great move… I am not going to tell you to plunge in here… I would like you to start buying… put some money into companies that have accidentally high yields… stocks that have fallen so fast that the dividend seems to be really, really big and they are save… lets buy some of those… maybe we buy some of the companies that are long term great, Colgate and Heinz kind of things… you know, companies that have never been dented by the Chinese or the Japanese, and have great brand names…. I would put 10% of your money over the course of the next year… and then wait a year… and then do the same thing the next year… take this very, very slow… this is a going to be a tough market for a long term… it may bounce… there is definitely opportunity… and that is why you are putting that 20% to work.

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[verbatim recap]

[end of segment]

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