Tuesday, October 14, 2008

Portfolio Strategy

I believe the worst of the credit crisis is past. The trillions of dollars of liquidity, equity and loan guarantees past two days from governments around the world should stablize the financial markets.

Yesterdays nearly 1000 point advance was a welcome relief after the relentless recent negative days. Now we have to get back to reality after the very surreal events of the past month. That does NOT mean investors should begin a feeding frenzy based on the media's comments that "America is on sale." It's not.

With the melting of frozen credit facilities we can once more look at the basic issues of valuation, earnings, and longer term market action. The truth is, we were going to get to this level anyway. The credit debacle has brought the market down faster than any previous bear market including the Great Depression. This has truly been a collapse of historic proportions.

There are a number of opportunities within this crisis. Things investors should be doing in a very difficult time. It is not time to abandon long term strategies, but it may be time to clear the decks and mind.

Review portfolios for holdings that no longer make strategic sense. Individual stocks that have lost their purpose and competitive advantages in particular. Indexes and diversified funds will return to positive ground in time. Specific companies many never.

Tax strategies need to be reviewed now for yearend, but this subject is better handled in a single posting because of the many aspects it entails.

After a serious market correction, very often the new leaders in the market are not the same as the past leaders. Remember the Sun Microsystems or Corning, then we had the housing stocks like Toll Brothers, then materials stocks like US Steel, Consol Coal or Alcoa. Don't be afraid to take a very critical eye to holdings because the next winners are very likely not yet in your portfolio.

John Barnyak