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