Welcome to Chesapeake Investment Advisors, Inc. Greetings!
Well April 2009 is in the books and it turned out to be a wonderful month for the Market. The S&P 500 grew by 9.5%, the DJIA jumped 7.5% and the NASDAQ was up 12.3%*. Now the question that's being asked is this, are we beginning of a new bull market, or is this a Bear Market Rally. My answer is...I don't know--nobody does.
My gut tells me we may have come too far too fast, that this is a temporary correction and we'll slow down soon, heck, it can't keep going at this pace.
On the other hand, I think I might be too cautious--too Roubini-like. I guess this is because we've been in this trough for so long I've become accustomed to only bad news, and of course that's all we hear from the media, how bad things are. The bottom line, bear or bull--only time will tell.
So in the portfolios where we have short-term needs we should remain cautious & defensive. In long-term money we should still be in the market.
Now, this is important, if you discovered during the last year or so that your appetite for risk is less than you previously thought, do not feel alarmed--you are not alone. It would've required superhuman optimism to read through those September to February monthly statements and see any silver lining. Now could be a good time to take some risk out.
Luckily, whether or not this is a bear market rally or the beginning of a new bull markets, these short bursts upward offer an opportunity to reduce risk and get into a more conservative portfolio. If this sounds good to you (and we have not done something already), give me a call or shoot me an email and we'll talk about how we can take some risk out.
We might not get the cheese--but maybe we can get out of the trap.
Marty
* Results reported by Morningstar |
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Market & the Economy
The Market and the Economy are two different entities--in the US we think of the "Markets" as the S&P 500, DJIA, NASDAQ and a few more.
The S&P 500 is a good one to use as a barometer of stocks--it is also one of ten leading indicators used by the Conference Board* to predict where the US economy is heading.
The economy what we live everyday, buying and selling goods, manufacturing things, going to work, employing others etc.
When investors buy shares of public companies they are basically buying the right to future earnings. They are not buying what the company did last quarter or last year, but what the company will do next year or next decade.
So when we see a company's stock or the S&P 500 trading higher we can surmise that investors are collectively thinking that the company or market is presently undervalued in relation to what they think it will be valued in the future. Of course, for each buyer there is a seller who probably thinks just the opposite.
As a result, this April while the economy was out-to-lunch and un-employment came in at 8.5%** with a bullet, many investors were buying, thus driving the market, i.e., April's S&P 500 up 7.5%.
The market and economy are linked--but they move at different times. This is why we often have positive returns in a recession and conversely, negative returns in a economic boom. MK
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De-Leveraging
or, Let's get rid of this Debt!
Here's a nifty little tactic for fighting pesky debt. I don't know who to credit with coming up with this system, but in practice I've seen it work. Make a list of all the long-term debts and the monthly payment and put them into a spreadsheet.
Sort the list by principal owed--smallest to largest. Since mortgage interest is probably tax deductible for you, put the house payment last regardless of its value.
The next step is to find somehow, someway an extra couple of hundred bucks a month and add it onto the smallest loan. If you can't find any extra money you need to work your budget harder. As you work on paying down the smallest loan, continue to run your spreadsheet every month. Then, when you're done with that first loan, you add that payment to the second payment and start rolling them up. Let's look at an example:
1. Car Payment $ 325 Principal $ 7,500
2. Credit Card $ 200 Principal $ 10,250
3. Boat Payment $ 330 Principal $ 13,500
4. Student Loan $ 195 Principal $ 17,900
5. Car Payment $ 450 Principal $ 21,000
6. Mortgage $1,350 Principle $115,000
Totals $2,850 $185,150
In the first month make all the payments as normal, but add an extra $200 on the first car payment for a gross payment of $525. Continue this until the loan is paid off (about 15 months at 7%).
When loan #1 is paid off take the $525 you were paying on it and add it to the $200 from loan #2 (credit card) for a total new payment of $725. (By the way, when the credit card is paid off have a small midnight party with your significant other, cut the card in half, dig a hole in the back yard, put the two pieces of card into the hole, set them on fire, and when it's a little piece of sizzling black plastic bury it in the hole. Then both of you step on the hole and tamp it level.)
After your credit-card-burning-party take that cumulative $725 and add it to the $330 for loan #3 for a total payment of $1,055. By the time you get to Loan #6 you will be writing one check a month for debt service and putting a full $2,850 onto your mortgage-your last big debt of this lifetime.
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| Concept of the Week:
Let's Talk about a Budget
Over the next few editions we'll get into making a budget. A budget is a road map for your check book. Using a budget can help get control over your checkbook--rather than the other way around.
To get accurate directions from a map you must know from where you are starting. The first exercise then is to figure out where on the map you should stick the note "You Are Here".
Directly after reading this email grab a clean note-pad and put today's date on the first sheet, then start listing every time you spend any money. Write how much, date and time when and to who. It doesn't matter how little--you are only recording the out-flow of cash or checks. In the next edition we'll start on the budget, but we need at least a month's worth of data on out-flows.
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| Book I am reading now: Citizen Soldier, by Stephen E. Ambrose Simon & Schuster--1998
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| I will be on vacation from May 3 to May 10--I will have my computer and phone and the office will be open if anything comes up. Thanks, Marty | |
