One of the things I’ve learned in the past month is that diversification – the “holy grail” of investing, is not what it is cracked up to be. In fact, I’ve come to realize that one of my immediate investing goals should be to reduce the amount of diversification in my portfolio.
I realize that this statement will have many of you yelling and screaming, or immediately unsubscribing under the assumption I am a fool. But hear me out.
What a treat for investors or business owners! I wish I had this book when I started my first business – it would have certainly sped up my learning process at the time. And for investors who want a good solid background on reading financial statements, it’s hard to imagine a better introduction.
An ARM can be a huge money saver, or a time bomb. Unfortunately, there are a lot of time bombs out there.
One of my basic assumptions with regards to planning for the future (whether it is financial planning, or career planning, or other) is that we are in a period of disruptive change (which I’ve been calling the “Information Revolution” – as a way of indicating it is analogous to the Industrial Revolution”).
Periods of gradual change are relatively easy to deal with. Individuals can extrapolate and plan based on the past. Words of wisdom from parents and elders more or less make sense.
Disruptive change adds discontinuities to trend lines. Suddenly what worked in the past does not work anymore. Common knowledge is incorrect. What was good advice can suddenly become very bad advice.
Everybody knows that one of the first critical parts of getting your financial house in order is to create a budget. How can you know if you are living within or beyond your means without one? How can you figure out where best to cut expenses if you don’t know how you’re spending your money?
Budgets, at least as presented by most experts, are very much an all or nothing proposition. What good is a budget that doesn’t include all your expenses? Quite good as it turns out.
I’d like to invite you to look at a recent, not atypical, four day chart of a stock. In this particular case, it’s SiRF Technology Holdings (SIRF).
As you can see, the stock gapped down from the $25-$26 it had been trading at to the $19-$20 range. You see this kind of thing all the time when “bad” news comes out.
The question I’d like to raise today is: who set the price?
Mr. Market is an Idiot. On June 21st, I posted an article “Thinking About Garmin” in which I proposed that Garmin is uniquely positioned as the leader in a technology that is “crossing the chasm” from early adopter to mainstream. I was expecting a stellar earning report this week, which is exactly what Garmin delivered. Only to see the stock go down.
So I took another look at my analysis.
It’s hot here in San Jose. With a record streak of record temperatures (many over 100 degrees), newspapers are reporting that every local store selling air conditioners has been cleaned out. Similar stories are being heard around the country.
Naturally, that led me to think again about companies selling air conditioners. I already wrote about Lennox which, while down from when I originally looked at it, still looks like a good medium term play. Their plan on building up an extra large inventory this season looks like it will pay off big time, though it may not be until their next quarter report that we’ll really know the results.
But Lennox mostly sells larger units. Today I went looking for companies that sell the portable and window units that have been selling like crazy, and I found Fedders Corporation (FJC).
In his book You Can Be a Stock Market Genius (review at ThinkingAboutMoney.com), Joel Greenblatt discusses the investment opportunities that come from investing in special situations – such as corporate breakups and mergers.
Over the next few weeks, Cendant is breaking itself up into four companies. You may not have heard of Cendant, but you’ve certainly heard about the companies it owns.
Devaluation of currency is not uncommon in other countries, but so far has been moderate in the U.S (in part because the dollar is the world’s currency). I recently discussed this in an article titled Speculating on the Future of the Dollar. But given our massive debt, budget deficit and trade deficit, a significant drop of the dollar against other world currencies (and corresponding increase in inflation as all types of imports become more expensive) becomes a possibility.
How can you protect your portfolio from a significant slide in the dollar?
