| The markets continue to be tumultuous | | | | Another group of securities that haven't |
| and we're seeing the markets re-test the | | | | been fairing well lately is the |
| lows that were reached in August. Since | | | | closed-end bond funds. Typically, bond |
| October 29th, the S&P 500 is down 8.5%, | | | | funds do well when the stock market is |
| the Russell 2000 is down 10.7% and the | | | | falling and interest rates are going |
| emerging markets are down over 15%. Even | | | | down. Credit-related panic selling, |
| energy stocks are getting hit hard. | | | | though, has driven the price some |
| Should you be selling stocks, gritting | | | | quality shares down 8-10%. Will the |
| your teeth and hanging on or be stepping | | | | credit crunch adversely affect these |
| up to the plate and buying? | | | | holdings? |
| To answer that question, you can't just | | | | I don't think it will. There are |
| look at the headlines or your account | | | | closed-end funds with attractive |
| value and decide whether or not action | | | | portfolios of bonds that can be |
| should be taken. The market headlines | | | | purchased for less than the underlying |
| are based on averages. Movements of the | | | | costs of the bonds themselves. For |
| bigger companies in the averages can | | | | instance, a sovereign government fund |
| easily skew the performance. The | | | | isn't going to be adversely affected by |
| financials have been getting hammered | | | | the sub-prime mortgage situation, yet |
| lately and financials make up a large | | | | these shares have been sold-off just |
| part of the S&P 500. | | | | like everything else. But they continue |
| Of course, that doesn't mean that other | | | | to pay their dividends and have yields |
| stocks are immune. Investors (and | | | | over 6%. |
| traders) can panic when they see the | | | | With the 10-year U.S. Treasury now |
| decline of the averages and they sell | | | | yielding less than 4%, these are very |
| everything. And sell they have. | | | | attractive yields. As market fears |
| The decision to buy, sell or hold | | | | subside, investors looking for a higher |
| shouldn't be based on the overall | | | | level of income will once again |
| market. It shouldn't be based on fear or | | | | recognize these securities and move |
| greed. I believe we need to look at | | | | money back into them. That should bring |
| individual holdings to determine which | | | | a recovery in their share prices. In the |
| action we should take. | | | | meantime, we continue to earn over |
| I don't know of anyone who has stopped | | | | double the 10-year Treasury note. |
| using their telephone or internet based | | | | In short, if we just look at the |
| on the recent decline in the market. | | | | headline numbers of the major stock |
| You'll continue to use it and you'll | | | | market averages, it's easy to come to |
| continue to pay your phone bill month | | | | the conclusion that we should get |
| after month. That's money the telephone | | | | fearful, sell off stocks and move a |
| companies can use to grow their | | | | large part of the portfolio to cash. |
| businesses and to pay dividends. Rural | | | | When you dig below the headlines and do |
| telephone companies also receive | | | | some research you see that there are |
| subsidies from the U.S. Government. This | | | | high-quality, defensive companies that |
| represents a very stable cash flow. | | | | make sense to continue to hold and to |
| To say that differently, a rural | | | | buy more. |
| telephone company's ability to pay their | | | | I've just highlighted a few examples. |
| dividend usually isn't affected by the | | | | The market downturn, in my opinion, has |
| economic cycle. That's one reason I | | | | also created some attractive |
| regularly use them in my clients' | | | | opportunities in growth-oriented |
| portfolios. | | | | companies. In particular, I like |
| That hasn't prevented a sell-off of | | | | companies that are part of longer-term |
| these rural telephone carriers of late. | | | | global trends. For instance, global |
| Those buying these stable companies now | | | | growth and the need for alternative |
| are handsomely rewarded by higher | | | | energy have spurred tremendous demand in |
| dividend yield (many now in the 6-10% | | | | several industries. Those stocks are now |
| range). | | | | very attractive. |
| The underlying businesses of these | | | | The key is to not run with the herd. |
| companies haven't changed. Their ability | | | | When everyone is rushing for the exits, |
| to pay and increase their dividends | | | | those brave enough to stay behind can |
| hasn't changed. So it's hard to justify | | | | pick up some real bargains. I believe |
| selling them now. It's quite easy to | | | | that now is one of those times. |
| build the case for buying them. | | | | |