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Analyze the Future

Gold Ingots

As a teen, I would often watch Lou Dobbs on TV when he worked at CNN.  In the Caribbean we didn’t have much choice about what channels we could watch.  

Lou always had some interesting guests that discussed the economy, the markets and politics.  I started becoming fascinated with investing and researched top investment managers.  One name rose to the top and that was none other than the mighty Warren Buffett.  What I liked about Warren Buffett was that he was humble, smart, patient, invested in what companies he understood and he buys when companies are undervalued.  One of Warren Buffett’s most famous quote was “ Rule No. 1: Never lose money. Rule No 2: Never forget rule number 1”.

Naturally, I wanted to know how Warren Buffett learned all he knew about investing and I discovered that he was a disciple of Benjamin Graham.  One of the books Buffett highly recommended was The Intelligent Investor by Benjamin Graham. Staying true to Buffett’s strategy of Value Investing, I found a copy at Half Priced Books for $2.99.  Why is Value Investing so important in this current economic climate?  Since the financial markets crashed in 2008, the Dow Jones Industrial Average (DJIA) has been on a steady increase.

DJIA

The NASDAQ and S&P 500 have a similar trend line. Is the upward trend sustainable?  I don’t believe it’s sustainable.  I believe the market will make a correction which means that both healthy companies as well as unhealthy companies will be impacted.  It’s going to be a great time for Value Investors if you can identify good stocks because they are going to be on SALE!

Rationale

What are the reasons I believe the market will correct?  Everything seems to be going great.  Well things aren’t really that great.  Here is a short list of reasons why there will be a selloff in the market.

  1. Political uncertainty:  President Trump could not get his health care bill passed in Congress even though the Republicans control all three branches of government.  There is fear that the President won’t be able to pass tax reform either.  The President recently ordered a preemptive strike on an Air Force base in Syria which is a complete contradiction to his campaign promises.  No one knows what our current President’s next course of actions are–or do they?
  2. Economic uncertainty: The most recent Jobs numbers were weak.  Many retail stores are closing branches such as Ralph Lauren.  Other retailers such as Sears are filing for bankruptcy.  Many people will lose their jobs and those jobs are not coming back.  The President also recently signed Executive Orders to roll back banking regulations which means banks are now free to take additional risk–the sort of risk that crashed the market in 2008.  Can we trust the banks to be more responsible this time?  I’ve seen a video on Facebook where a Lion was living in the same enclosure with a goat without eating the goat.  The chances of that same goat not being eaten by another lion if it was placed in another enclosure with another lion is probably zero.  You can’t be mad with a lion for eating a goat, that’s why I’m certain the banks will screw up the economy once again. By the way, the national debt as of April 8th 2017 is $18.96 trillion dollars.  Unbelieveable!
  3. Technological advancements:  Artificial Intelligence, Big Data, and Machine Learning will usher in a new wave of automation and innovation.  Jobs that are repetitive will be the first to disappear.  If you work at a Mcdonald’s, or Starbucks it’s only a matter of time before your job is replaced by a machine.  If you drive a taxi or Uber or Lyft, your job will be replaced by a self-driving car.  There is nothing the working man can do about it.  We live in a capitalist society so we’re trained to reduce costs and maximize profits.

 So how do you profit if there is a selloff in the market?

Hedge Funds

Investors in hedge funds take no prisoners.  They expect hedge funds to make money whether the market is moving up or down.  There is no morality, no questions about whether capsizing a pension fund which holds people’s retirement is the right thing to do.  Watch Gordon Gekko explain capitalism.  

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