Tuesday, February 03, 2009

Hog Haven

First the disclaimer - I am an animal lover. I cannot resist the little furry folks, least of all the precocious meteorologist, Punxsutawney Phil. Yes, yesterday was Ground Hog day and upon seeing his shadow, Punxsi predicted another six weeks of winter.

The idea is that if the weather is balmy at midwinter, February 2nd on the calendar, the second half of the winter season will be particularly harsh with storms and cold.

This sound familiar does it not? Ground Hog Day for predicting the weather is something like stock market prognostications. For example, an NFC winner in the SuperBowl suggests a bull market is forthcoming, while an AFC win foretells the bears will be on the rampage. Yikes! Maybe investors should call for a review of that spectacular end zone catch by Pittsburg Steeler Santonio Holmes in the final minute of play in SuperBowl XLIII on February 1st.

Punxsutawney Phil was allowed to zip back into his burrow after his work was done. Actually Punxsi lives in a fairly swanky ground hog pad kept by - count them - two handlers. Investors are left to face more nasty weather and apparently more bearish market conditions.

Investors need a haven too. Dividend paying stocks have been suggested as an alternative to growth stocks. However, as we noted in the last two posts, economic conditions have threatened some dividends and yields from even the best paying stocks have entirely made up for decreases in stock value. We have also suggested to using options strategies as a means to reduce capital requirements for long positions are to play the uncertainty in the current market. Successful execution of options strategies require skill and experience that some individuals might not have.

The idea that there is no magic formula to avoid risk or quick fix for high returns may take some investors aback. That successful investing requires prudence and patience is an element that seems to elude many investors, particularly those who have experienced only the most recent bubble and collapse. Experience teaches us - there is no hog haven.

By the way, an extended winter and above average cold weather has implications for several sectors that are heavy heating fuel users like utilities. Late onset of spring is also a negative for the agriculture sector including the fertilizer, seed and farm equipment companies.

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