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