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The Volatility in the Market
Over the last while, the market has not been kind to investors. For most stocks, they reached a high some time ago and have since been drifting downward. In the last few days, the market capitulated – it dropped precipitously. We saw drops in the Dow and the TSX of historic proportions. Now we are seeing the start of a recovery – maybe.
Many investors felt that October of 2008 was repeating itself, when all stocks fell instantly and dramatically to absurdly valueless levels. Sell orders followed sell orders, and signs of reversal were met with repeated sell orders. No-one knew how far the collapse would go, and everyone suffered. But remember that after that fall in value of October 2008, stocks inevitably rose again. They are starting to do the same now.
The Real World
In reality, the economy in China is suffering a real slowdown, and this slowdown has caused fear to run wild in China. A stock market in China that rose every day, and made enormous profits regardless of what stocks you bought, was doomed for a setback. Every wild exaggerated bubble ever created, in any market, anywhere, has always met the same fate. It was inevitable.
So the market there gave back all the gains that it made this year. If you think about that rationally, so what! If you bought a stock there last year, it is still worth roughly now, what you paid for it then. Not such a disaster.
Arising from that correction, world markets caught the fear and the 10% correction that everyone expected, happened worldwide. World markets gave back 10% of the gains, in essence breaking even on the year.
What the market doesn’t take into account, is that China was growing at a rate averaging around 7% per year. This is an enormous rate of growth and unparallelled in modern times. If the rate now falls to 6%, or 4%, or even 2%, it is still a better growth rate than most other economies. So taken in perspective, Chicken Little has not seen the Sky Fall!
The Supposedly Unsustainable Debt
The other fear running amok, was that the enormously indebted society that every country and economy has built up, can no longer sustain itself. The fear was that the weight of all of this debt would collapse society.
I don’t know about the reader, but I still bought my coffee today. I still bought my lunch today. I still drove my car today. I still went to my office today. And so everyone else still did today what they did yesterday and the day before. There is no collapse and will be no collapse.
So the collapse in the stock market is is not based on any debt issues.
The Ultimate Portfolio
It is time to provide for our readers, The Ultimate Portfolio. Over the next while, we will periodically add stocks to that portfolio, that will make this portfolio perform reasonably well, and reasonably profitable, regardless of these market aberations, and these sudden rises and falls in value.
This portfolio is a CymorFund portfolio. We will periodically reveal stocks that we have in this portfolio, that have done well, and will continue to do well.
The Criteria for The Ultimate Portfolio
This portfolio is designed to be conservative.
It provides a sustainable regular income.
It includes a balance of large caps with regular dividends and good value.
It includes a balance of small caps and unrecognized gems that provide great upwards potential.
It is designed in the Warren Buffet style – buy when the value is there and be there for the long term to recognize great profits.
Today’s Addition to “The Ultimate Portfolio”
Bank of America.
BAC trades on the NYSE. Today’s close was $16.04. It has a 1% dividend. It is very undervalued compared to its peers on almost all metrics. It has been beaten down thanks to many fines and lawsuits from the wild days of mortgage backed securities but those are over now. This is a long term secure and safe hold with tremendous upside. It is on sale right now and a real bargain.
We will reveal more additions to this portfolio in the coming posts.
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