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Tuesday, November 14, 2006

 

Election thoughts

Election night was no surprise to Redwavemusings readers, as the Dems gain in the House was well within the predicted parameters, and the Senate came down to the six states that the Dems needed to win, after holding NJ and MD. The only surprise, though we had conceded the possibility, was that the Dems won them all, though the counts went to day two as predicted.

Now that they have the majority, it will be interesting to see how they share the burden and responsibility for governing in these times of the early years of the war with militant Islam. Up to this point, it has been easy for them to join and exacerbate the media drumbeat that basically amounts to little more than Bush hatred and the tired old liberal class warfare policy prescriptions. Of course, when Clinton was in office, the GOP was no less relentless.

As for the Republicans, it is clear that their congressional leades butchered the last few years through the earmarks system and the corruption by lobbyists, etc. As McCain wisely said, it stopped being about limiting and improving government and became totally about maintaining power - being government. The administration has blown it too by not giving the other side a reasonable hearing. It's one thing to pursue the war seriously - a good thing - but another thing to belittle and disregard criticism, which is what the media and the loyal opposition are supposed to provide. The administration and congressional leaders also missed excellent chances to compromise on any number of initiatives to achieve results that would have been better than where we are now - estate tax reform, a more reasonable and less costly prescription drug solution, and AMT relief to name a few major items. Also social security reform was blown. So the GOP will need to straighten up its act in a hurry in order to resume majority status.

One consolation is that the newly elected Dems who provided the majority tend to be centrists, not flaming liberals. This should put the brakes on the senior liberal leadership group. If it doesn't, the Dems majority will be short-lived indeed. If the Dems are smart though, they will follow the model of the UK's New Labour party that grabbed that country's center for so long, leaving the Conservatives a very shallow Right end of the pool. The public has had it with the extreme positions dominating the policy debates. So, the Dem centrists, like Independent Dem Lieberman, should have more influence. I still say that a very smart choice for a Dem Presidential candidate would be Bill Richardson of New Mexico, who will be less polarizing then Sen. Clinton. He won re-election impressively as Governor.

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On 11/8, I bought 1600 shares of WLV at 1.28. This is an average down in a situation where the company has talked openly about filing a pre-packaged bankruptcy. In a pre-packaged bankruptcy, usually more capital is injected into the company, the bondholders exchange some or all of the debt for equity on favorable terms, and the original stockholders suffer a reverse split. However, if done correctly, the company quickly emerges as a more stable entity with better cash flow and restored operating margins. Whether the original shareholders have any hope of getting even is somewhat problematic. So why average down, especially when most financial advisors advise against it even under normal circumstances? Well, I have had pretty good luck with average downs, (for example, BAMM, FFEX and CNRD) for one thing. For another, Wolverine Tube was a great company at one time and has suffered mainly from a distortion in the price of one of its major raw materials, copper. Finally, the copmpany still trades at about one seventh of its book value. Of course, that may mean that its non-cash assets are grossly overvalued, or that its inventory and accounting methods are flawed, or both. However, I have not removed it from my buy list, so when it came up in my formula, I do what I have learned to do from experience - hold my nose and buy.

Yesterday, I sold 100 ROP from my taxable account for 49.35 on the opening. Aside from the tax hit (these shares were purchased for 18.40 on 2/19/01) I was also greeted by news of a dividend increase at the close. As usual, impeccable timing. At least I could console myself that there are still 400 shares in the portfolio to benefit from the higher dividend. Years ago, I agonized over every sell decision, particularly after my all-time bonehead decision to sell ALL of my shares in DELL Computer way too soon. Someday, the full sad story of that chapter will appear in the blog. However, like all investors, I also had the experience of seeing gains melt away because of an inability to ring the cash register. So I had to find a way to take the emotion out of the sell decision, and that solution is now part of the formula. Importantly, I sell the way I buy, in small pieces, and that takes the agony out of the decision. Usually, I've still got shares to enjoy additional gains if they are going to come. I will only sell my whole position when the reason for buying the stock originally no longer exists. And that does happen, and when it does, I no longer even follow the stock.

But it's important to book profits, even if you have to pay some taxes. Best investment advice I ever read was "Don't forget to sell!"

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