Suck It Up

They're called "sukup" bonds because investors buy them in an attempt to suck up to the issuers and when they default have no choice but to just suck it up.

Consistency

In today's NY Times an article on the front page of the business section is titled: "Kazakh Bank Lost Billions in Western Investments" -- but on the overleaf on page two where the article continues the title morphs to: "Western Investors Lose Billions in Kazakh Bank; Ex-Chairman is Under Scrutiny."

Investing With A Longer Time-Line

At the end March I quit day trading while I was still ahead. I decided I didn't want to be hostage to the daily news cycle. I made this change after several instances of getting blind-sided by announcements from the Obama administration that served to goose the market upward for no good reason. My investing horizon is now three business days -- the amount of time it takes a trade to clear -- and upwards.

Not Buying or Selling Today

After the steep drop of the past several weeks I got out of the last of my short positions in SDS (an ETF that shorts the S&P 500) yesterday at a handsome profit. Today's rally (as of 11:45 a.m.) leaves me with no clue about future direction. Shorts are too expensive. Long trades strike me as too risky. Given that, for today at least, I am just inclined to watch.

At the moment my portfolio is 87% cash, 11% long stocks, and 2% bonds.

Consequences of Deviating From Plan

I am trying to focus on gains in the very short term. Last Wednesday I bought SKF which shorts financial services stocks. Late yesterday my 100 shares were up around $1,800. Had I been sticking to plan I would have sold and taken the profit. But I thought it would go up further in the short term and didn't sell. When that didn't appear to be happening this morning I sold at a profit of $811.12 (6.1% return in 5 trading days). Had I not deviated from my plan I would have done a lot better. However, I am focusing on being grateful for the profit I made and trying not to dwell on the higher profit that got away.

Sobering

This assessment in today's Financial Times by Luke Johnson, who runs Risk Capital Partners in the UK, is quite sobering:

Prepare for a wrenching, unstoppable redistribution of wealth – and I am not talking about domestic taxes. For too long it has been more profitable in the west to finance consumption rather than production. That cannot continue. I am afraid that the west’s credibility – and luck – has run out.

This vast reordering of our economic system has only just begun. We shall have to cancel all the self-indulgence of endless welfare spending and cultivate rather more of a work ethic and a sense of self-sufficiency. Expectations must be modified and attitudes altered profoundly. Expect years of negligible growth, permanent high unemployment, declining property prices, higher taxes, crumbling currencies and falling living standards.

The Long and the Short of It (by John Kay)

Here is the first sentence of the review of John Kay's book by Stephanie Flanders, who is the BBC's economics editor:

"John Kay thinks the modern financial world is greedy, cynical and self-interested, and that we should all shun the professionals and manage our investments for ourselves."

And a few paragraphs later on:

"One word of warning: if you have any investments managed by somebody else – and like it or not, almost anyone with a pension does – this is not going to be a comfortable read. Kay’s point is not that professional investment managers are naturally wicked or corrupt, although, of course, some are. It is that inevitably, by the nature of their business, these people will rarely have your best interests at heart.

For starters, in order to remain professionals, investment managers need to make money out of your investments, regardless of whether they go up or down. You do not. If you manage them yourself, “your bonus is already in your pocket”. The regular FT reader is probably already scandalised by the scale of commissions and management fees in the retail investment industry, never more than when these percentages come on top of the double-digit losses that most investors will have suffered in 2008. But you are probably still not scandalised enough."

My sentiments exactly. John Kay writes an excellent personal finance column in The Financial Times, from which much of the material in the book was adapted.

Here is the url of the book review:

ft.com/cms/s/2/4bf99cdc-e35b-11dd-a5cf-0000779fd2ac.html