April 9th Meeting Notes

• Wells Fargo

The discussion regarding WFC was about how the stock could continue to go up despite the fact that bank, in general, are in such an unhealthy position. It is safest for us to assume that any and all bailout money that has gone to the banks is boosting the company's earnings. The improved earnings cannot be expected down the road unless accounting rules are changed or new government money is pumped into the system. Wells Fargo is one of the better run banks and should have a quicker improvement as things turn around.

• Cycle Analysis

The purpose of attempting to understand cycles is to put our current circumstance in perspective so that we do not over-react in our investing. It would seem that much of what goes on is new however the underlying principles are generally the same. For this reason we would not need to panic when stocks crash or boom.

• Bull Markets

The best way to describe a bull market is to look at a chart of the clearest bull market periods of 1921-1929, 1932-1937, 1949-1966 and 1982-2007. While there are periods when the stock market has had significant increases during period outside of the years mentioned above, it is important to keep in mind that the duration of market increases outside of these periods are within a bear market. Also of importance is the fact the "real" bull markets take a long time to achieve significant gains.

• Bear Markets

Bear market are characterized by the periods of 1906-1924, 1929-1932, 1929-1950, 1937-1955 and 1966-1982. The charts below should assist you in visualizing that a bear market doesn't necessarily mean a falling market. The periods of 1906-1924, 1937-1950 and 1966-1982 had the stock market trading in a range. The hardest part of these market periods is that inflation killed the investor more than market declines did. One dollar put in at the beginning of each period would have resulted in it being equal to $1 at the end of the period excluding inflation. If inflation was included then the $1 would be less at the end of the period.

• The Ten Times Ten (10x10) Approach

In the book "Crisis Investing" by Douglas Casey he describes an investment strategy where a person breaks up their investment into ten unrelated and highly speculative groups. Of the ten unrelated areas each investment should move in the opposite direction of another investment. For example, gold v. bonds, short selling a stock v. going long a stock. The gold position would be owning the actual gold not gold stocks. When going long a stock it should not be a gold stock if you're already holding the physical gold. Do you have questions about this concept? Post them on the blog and I'll do my best to answer.

• Investment Vocabulary

All investment terms will be linked to Investopedia for an explanation. If there is a word that isn't clear then be sure to visit Investopedia for more assistance.

Click here to ask questions or send comments.