Where Will Fiscal Cliff Investment Losses Occur?

The stock market will likely suffer if Congress and the White House cannot come to an agreement limiting US spending and agreeing to pay necessary debts. Last time around the perfect US government credit rating took a hit. To the extent that those in charge cannot get a handle on spending, the dollar will continue to fall over time and everyone with money in the bank or a paycheck will see the value of their holdings and earnings decrease with inflation. The dollar may not fall versus the Euro but it may suffer when traded against the currencies of the BRICS nations or even countries like Colombia whose currency did the best of all against the dollar in 2012. When Americans start investing in foreign stocks or engage in foreign real estate investments as a result of the politicking in Washington, it means fiscal cliff fight investment losses at home.

Can We All Just Learn to Agree?

The United States is badly in need of consensus. Better put, the nation is badly in need of leaders who govern by consensus. This gets back to our assertion that fiscal cliff fight investment losses will come from uncertainty instead of from a specific set of policies that may be enacted. The nation has come through a large number of economic and political scrapes, global wars and a civil war. It all works out over time if individuals, families, and investors have a sense of a fair playing field and a sense that what the rules are today will be the rules tomorrow. In the meantime, look at consumer stocks as an anchor during tough times, dividend stocks like power companies for steady return, and do not let fiscal cliff stock worries give you and ulcer as it may just work out in the end. And, always do your own fundamental analysis.

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Before the market meltdown it was “artificially” high, driven by derivatives and a sense of desperation on the part of aging boomers trying to recoup years of overspending with stock market magic. Then came the meltdown and with so many folks over leveraged the market went “artificially” low. As such a market starts to recoup there is market investment opportunity after market investment opportunity for those with cash who have done their homework. Here is where the wary investor tends to lose out, “once bitten, twice shy.”

I called the market “artificially” high or low. When one looks at the market in the long term perspective and one is not desperate for cash then there is a forward looking value to things and therein lays market opportunity. The market is never really too high or too low. It reflects the current value of the stocks it contains which, given forward looking value may an investment opportunity. Warren Buffet is legendary for his long term success. When the markets were still questionable a year ago he picked well and his fund has profited. However, the wary investor factor is still there. The same folks who held on to their stocks too long as the market plunged are now afraid to reenter and will miss the market opportunity as the recession mends.

We cannot all be Warren Buffets. For one thing most of us have other, daytime, jobs to attend to and do not have a big staff to do our legwork. But, we do not need to follow the whole market and we can be aware of forward looking value and buy when the signals are right instead of being a wary investor and waiting until a stock has recovered all of its pre recession value before getting back into the market.

If you held a portfolio of strong stocks all of the way through the recession then you were already invested at the low point in the market. Nevertheless, as you add to your holdings now a little market timing will not hurt when the signals are strong, such as with the over selling at the bottom the market months ago.

The wary investor is not necessarily the prudent investor or the wise investor although they may fool themselves into thinking so. There is a tendency to get sucked into market psychology and see every penny stock as an investment opportunity. Then there is the tendency to discount every positive sign and prediction out of fear so that one believes there is never an investment opportunity and there will never be an investment opportunity again.