It seems a bit of gloom and doom has set in recently in the stock market. You can’t escape the constant chatter about the “fiscal cliff” no matter what news media you turn to. This is a time when people are uncertain and uncertainty sometimes breeds fear. But let us not forget how we arrived at this time and remember that “this time” has been here many, many times before. I want to take a moment to refresh our memories of how we arrived at the edge of the precipice.
It was August of last year when the most pressing concern of the day was the debt ceiling. The U.S. needed to raise the debt ceiling to allow more borrowing to keep the government wheels churning. Congress was hell-bent on not allowing that to happen. The markets were freaking out! Would the U.S really default on its debt?? That was the burning question of the day and although most people thought it would not happen, many were still convinced that it was a real possibility. Uncertainty at its best (worse?). As such the markets reacted with the kind of volatility that markets are known for when uncertainty is in the air. Why our leaders could not come to a sensible resolution like they have been elected to do is beyond me. As leaders of a great democracy they failed.
So what was their solution? Unfortunately working towards correcting the long-term problem in a meaningful manner was not part of the plan. If we were talking about a European country we would refer to the actions of our governments leaders as “kicking the can down the road.” However that is way to mellow for our liking; “fiscal cliff” sounds so much more…scary.
Remember the Super Committee? It was a bi-partisan group formed to get us out of this mess. They would work together and find a solution and if they failed guess what? Automatic spending cuts and tax hikes would go into effect. Something neither side wanted. But the Super Committee turned out not to be so super and they could not or would not come to an agreement putting us on a path to where we are now, closer to the cliff.
Here is my take guys and gals, we are going over the cliff, but we won’t hit bottom. What I mean by this is that everyone is going to make a sacrifice. The wealthy are going to see tax hikes, expiration of tax breaks, or both and the lower-income are going to see cuts in social services. This is the best thing that could happen. Of course no one wants to give up any portion the pie they now have, but sometimes for the greater good, we all make sacrifices. However, I have always been an idealist…
Ok, I shared this little rant above to tell you why I am a buyer when markets are down, they are opportunities in my mind. Stocks prices drop because of bad news for an individual company, such as poor earnings or due to macro-economic factors like the “fiscal cliff” we are fast approaching. This is the time when you purchase companies at fair to low value. Granted, I have yet to buy a company at its bottom, but I still think that by purchasing when prices are falling for reasons that are of no real long-term consequence is far better than buying when everyone is optimistic, throwing money around, and causing the price to rise. It is a preference that fits my own personal constitution and I cannot say for certain it is the best approach…
My purchase today was 50 shares of ADM at 24.57. This makes the third new addition to my portfolio in the last two months. The portfolio is in desperate need of an update as I have sell orders from last month that I have yet to share with you guys.