Turning COINS into Dollars

COINS – It stands for:

C – China
O - Oil
I - Iran
N - North Korea
S – Saudi Arabia

Call it the January, 2016 hole in your pocket. The above letters represent the reasons for this seemingly unending drop in stock prices, but unlike the hole in the pocket, these COINS will not cause the market to land on the pavement.

In fact, it paves the way for investment opportunities that could transform these coins into delightful dollars.

First, one must analyze the villains in this worldwide play.

Two years from now …….

I will no longer be checking the Bloomberg Channel at 4 in the morning every day to see how the China market fared because that seems to be a key factor in determining what the U.S. market does now.

And there’s a good possibility that the price of oil will not provide the present daily fixation. Only the Powerball drawing receives as much attention.

But whatever companies the collapse in oil prices has affected along the way will have already been determined by then, and it probably will no longer feel necessary to rub the sleep out of my eyes at 4 a.m. to check the prices of West Texas Intermediate and Brent Crude while I also analyze the supposed ruination of China, which by the way has a growth in GDP of 6.8 percent while transforming into a consumer economy.

Iran and Saudi Arabia will either be speaking to each other, or they won’t. But the fear factor caused by their breaking off diplomatic relations will not be present.

And two years from now, there may not be another North Korea nuclear test to nudge us further to the ledge.

After more than 31 years in this business, I’ve learned one thing to ask during these types of downturns – are the causes long term or shorter term? And if it’s the latter, then I need through active management to take advantage of the opportunity.

As many of you know, I’m a sports fan, particularly baseball and hockey.

When a baseball team makes its first round selection, they don’t expect that player to play in the majors the next year. He has to come up through the farm system, it takes time. They start in Single-A, and move up through the ranks.

Right now, there are a slew of companies that I consider first-round draft picks. Many are companies that are being hurt by the strong dollar because they do so much business overseas, and their earnings are affected by foreign currency losses. Many of those companies are yielding 4 and 5 percent annually in dividends alone. As I write this, the 10-year treasury is only 2.04 percent. If the global economy does weaken, then interest rates here will not go up as fast as the Fed had intended, and those dividends will look tremendous.

Everyone always feels that whatever direction something is going, it’s going to go that way forever. In investments, it’s because of the fear of permanent loss, which is always emotional and not logical.

Someday, the dollar will weaken, and the profits of those companies doing business overseas will soar. And then there are the companies who do business only or mostly here at home. They are not affected by China, and many are actually helped by the low prices of oil.

Yes, I expect this to be a challenging year, and I don’t mean to minimize the damage that has been done, but it is also a time to be positioned for the better times.

That’s what sports teams do. They are playing their current roster, but are readying their prospects down on the farm.

A believer in active management- that is the plan I choose – Turning Coins into Dollars.

Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.

Richard Baker