sore losers...no flu shot for Santa

November 8, 2004

Hello,

I think the theme of this weeks email is that as investors what we can learn form this year’s Presidential election, is don’t believe your own B.S. Media created truths don’t win elections or make winning portfolios. It is one thing to tell a good story, it is entirely another to believe it yourself. If it makes no sense, it is nonsense. Reality is reality and no amount of agenda driven lying can change it.

So what kinds of stocks look to prosper in the next four years? At the moment many of the same themes look to be intact in the second Bush administration as the first. There are some issues that can be affected by leadership and there are some issues that are consequence of longer term activity. As investors we attempt to separate the two and act accordingly. First there is Security because of continued terrorism, transportation because of a shortage of rolling stock, housing because of demographics and low interest rates .All these sectors point to continuation of the status quo. I would also add that the internet sector which has finally started to do something it had failed to do consistently in the past; make money. And then there is the policy part; more tax cuts, tort reform, interest rate increases, social security private accounts and judgeships. I think it is better to discuss these as they surface.

At times I have found it very frustrating in my efforts to articulate varying levels of risk with different investment selections. The definition of Risk is the issue it seems. It has come to my attention that most novice investors think of risk entirely differently than professionals. To most novice investors risk is simple; if the stock goes up there is no risk and if it goes down there is lots of risk. If they make money there was no risk and if they don’t there was risk. Most novice investors confuse making money in the short term with a level of risk. Folks risk has almost nothing to do with weather you make money or not. Risk is often entirely independent of investment results and entirely independent of short term investment results. Risk is inherent in a particular investment. Risk has many variables. Risk changes with time and circumstances. Risk is often deceptive. Risk is like an Iceberg, the big part is often hidden under the surface. Certain types of investments have more risk than others. Risk is a combination of volatility, consistency and duration, which means most investors, should think of risk as the velocity of which you could lose all or most of your money. A simple rule of thumb is take the time it takes and investment to double and divide that number in half and that’s the time it takes to lose that gain. The shorter the time the greater the risk.

James


www.jamesfoytlin.com