While most of Americans stayed out late into the night to see Obama’s acceptance speech, investors, economists, and business folks alike started to muster the obvious direction that the people chose. The very next day those folks that were ready for re-election showed their voyage of the market pulling their stocks and diverging it to treasuries or simply cash. Dow Jones Industrial Average (INDEX:DJI) settled 313 points or 2.4% its previous session.
So what did we re-elect in retrospect to our finance? The biggest news that everyone has heard of is the Fiscal Cliff and the many effects if that ridiculous problem is not resolved. However, I do not think that there is one individual in the business sector that believes we will actually hang over the cliff.
It will get settled!
Amid all that praise that we get from the President on the Fiscal Cliff issue the market seems to be oblivious and instead is proactive selling off another day. Dow Jones Industrial Average (INDEX:DJI) has broken resistance and settled at 12,570 on November 14 down from 13,245 when Obama was re-elected. You can not blame investors since the President is coming off strong on his agenda refusing to budge to any Republican compromise.
Beyond the obvious of all the problems are the tax hikes on the so-called, “Rich” which will be in affect starting Jan 1 of 2013. Undoubtedly, the rich are clearing their portfolios and revisiting their investment strategies protecting their profits. You do not have to look far to see who is doing the selling. With the recent Berkshire 13-F filing with the SEC, Buffet sold many of his top-heavy dividend stocks. Berkshire Hathaway Inc. (BRK/A) reduced its Johnson & Johnson (JNJ) holding by 95% selling an outstanding 5.5 million shares. General Electric (GE) also got the boot with the reduction of 88% of their holding down to only 588,900 shares. Berkshire completely disposed some of the smaller players in the portfolio which includes, Ingersoll-Rand (IR), Dollar General (DG), and CVS Caremark (CVS).
It always makes me laugh when I hear Buffet get on CNBC on down days and say that he is buying stocks because they are now cheaper. One can only understand that he is just the major Bull of the market and buys whenever things get out of hand, and holds on to his holdings for-ever. The reality has to phase in that even Buffet pulls the trigger to take his healthy profit, wait for the pullback, and get back in. Whether he gets back into the same stocks or others what ever he will buy he understands that the market pulls back every now and then.
Of all the people in the “Rich” spectrum who is calling for the President to raise taxes is doing his own selling to avoid the rigid tax hike. Why not? Sell now when the selling is good under the 15% capital gains tax.
The only one thing that bothers me on this part is that while we always elect candidates to take care of the middle class it’s always the Rich that take advantage of the situation while the middle class just waits for better days. So, while Buffet and many investors that manage money for wealthy individuals were predicting this downfall of events, the regular middle class citizen did not even peek into their 401(k), IRA, or other pre-tax savings accounts. Okay, now I understand, you do not have to beat me with a stick, there are some middle class folks, like myself, who do tweak their portfolios once in a while when the obvious turn in the market is visible. However, for the majority the awareness is not there or just a mere bliss.
Conclusion: When the economy can not get on its feet, politicians can not come to a simple compromise, consistent problems coming out as a result of the White House and corporate earnings are decreasing pay attention to what happens with the Dow Jones Industrial Average (INDEX: DJI) as well as the S&P 500 (INDEX: SPX). Follow simple momentum and the direction of the indexes to figure out when would be the appropriate time to for you take a profit. When you are taking profits or minimizing your losses it should be done in steps over a period of time and not all at once. When the market moves up 15% or 20% to new highs and vice verse it would be wise to dip into the portfolio and slowly reduce your position. Do not pick the lows of the low and high of the highs as even professional have trouble doing so. For long term investors this is the rule of thumb they should follow.