December Idea of the Month — 7% Yield From The Old and the Sick

By Travis Johnson, Stock Gumshoe, December 13, 2013

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I have a hard time jumping up and down and urging anyone to buy anything at this particular point in time — the market is not cheap, stocks with any kind of top line sales growth are expensive, real estate is being propped up by low interest rates that are likely to ease, and commodities are faltering in some cases (oil, natural gas) and completely collapsing in others (gold). The only stocks that look like real bargains are commodity-related in one way or another, and I probably already cover those sorts of stocks too often already — in addition to being overweight them in my own accounts.

I’m a long-term investor, and I usually buy stocks intending to hold them through both up and down cycles as long as my confidence in their business and their future growth remains strong, respecting the power of compounding income (especially compounding dividends) and the inability of any of us to accurately predict future stock movements to any degree of specificity. But there are definitely times when I want to hold more cash in my accounts and wait for bargains. This feels like one of those times.

And that’s a problem for me. I don’t like to hold cash. It’s one of the few things that I know for sure will be less valuable in a decade than it is today. Of course, I’ll still be able to pay my mortgage and buy groceries with it next month or next year, but over the long term the value of the dollar versus hard assets or other currencies is in a usually steady and slow decline. That’s how it’s designed, that’s the point of inflation — to make people feel good about rising incomes and keep money flowing so that you won’t hoard it. Hyperinflation is obviously terrible for most people and most asset classes, but a nice mild 2-3% inflation like the Fed would like to have is just what the American economy thrives on. And assuming we get back to that, savings will gradually erode in value and we ought to be doing something productive with our money — buying a business, buying income-producing assets, helping someone else. Money that’s just sitting is the bane of our economy … and though inaction is often the best choice for an investor in uncertain times and pricey markets, it’s not a ...

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