2 January 2011 Sage Investment Advice For the New Year
In a few paragraphs we will throw out our guess for where the market will end 2011. We first wanted to give you some advice that will go a long way towards protecting any realized gains you might enjoy this or any year.
On December 22, 2010, we were enjoying out Holiday break in our nice place up in Draper, Utah. We received a call from one of our neighbors here in California. Our homes were being flooded. That turned out to be the understatement of the week. Three simultaneous landslides as far away as more than a mile sent tons of mud, roots, and cacti streaming to the end of our street. Our home is situated in a quiet little cul-de-sac with 4 very nice homes. In this cul-de-sac are two huge culverts. I know they are huge as I had the pleasant experience of looking for my daughter keys down one of them. Each culvert is about 8 foot deep, 20 feet long and almost 4 foot wide. At the bottom of these “vaults” is a large manhole cover sized hole where the water and debris is supposed to flow.
The tons of root, rocks, soil and cacti acted as a bathroom plug on both culverts. In 30 minutes we had a lake effect in our cul-de-sac. Water was estimated at 9-11 feet deep in our street. The water and mud rose to just below our front door handle. Our first floor was underwater and a foot of mud was slowly seeping into our entire first floor. Our back yard was about 24 inches under water with trash mud and debris. The wine room of which we were so proud was not holding about 450 gallons of water and 300 bottles were submerged. Devin’s Cadillac was underwater and my three year old mid life crisis, a BMW 650i was now doing a great job of holding the all the water in its doors.
We have not yet begun the reconstruction process but we estimate the damage at 300,000 dollars, not counting the cars, which were covered at current value. The house and its belongings are not covered. This is true of all of our neighbors.
We don’t share this with you to make you feel sorry for us. We are truly blessed with more calls, concerns and prayers than any family deserves. The outpouring of support was amazing. We are confident that we could eat a meal at each person’s home and never were out our welcome for months to come. We would also like to say a special thanks to any of our readers who helped, offered to help, and who shared they’re prayers on us. We will be fine.
We tell you this story to help you be prepared for the unexpected. Just like when I help individuals get their head around this crazy game of investing, I usually play twenty questions about their job, their medical and disability insurance status, their personal health maintenance system, their 401K or IRA strategies. We will now add home and auto insurance to that checklist of things to do before you ever consider putting a dime in the market. We can all bust a gut analyzing stocks and reading our brains out and it can all be wiped out with a blocked artery or a cactied up culvert.
So on top of all the employment and health issues we have discussed here on many occasions, look at your homeowner policies. What are you covered for? What is not covered? Our agent did not offer and we did not ask for flood, debris flow, mudslide insurance, because we are not in an area where that could ever happen. Even today, we find it silly to insist we add this to our policy because we know it will never happen again, but we will. Even if we had the policy, we would still be looking at a 4-6 month reconstruction project, but we would not have the worry and the stress of funding this catastrophe on top of the construction issues. Here are a few other tips you could learn from as a result of our misfortune.
Get those pictures and super 8 videos digitized. Do it now, not next month or this summer, now.
Look around your first floor and move anything of value or sentiment from below you waist to above your waist, trust me on this one.
Move your electronic components to a shelf above your waste.
Move any of your important papers to a higher location, digitize them, and have digital copies stored somewhere else.
Take lots of photos and videos of your belongings before a catastrophe. It is really hard to remember the fabric of a chair or a couch once it is tossed in a 40-foot garbage bin. Keep those photos and videos digitized and stored somewhere else.
Keep an emergency contact list on your smart phone and be sure it includes your electrical contractor, all of your utilities, city and county permit people, air conditioning and heating people, and your home owners association board of director contact.
Get politically involved at the city, county, state and federal level. Do this by going to fund raising events, pay the minimum door cover charge to get in meet the candidate, shake their hand and get their assistant’s contact info. If you candidate looses make a small donation to the winner after the election and get their assistants contact info.
Know who your state insurance commissioner is and donate to their campaign and get their assistants contact info.
Don’t store books in the trunk of your car. It makes an interesting soupy substance when your car is submerged.
Understand that your car is mostly electronics and water and electronics do not mix.
No you cannot get that smell out of a submerged car.
Save the golf balls, everything else in the bag is toast.
Make sure your 90-pound bag of dog food is closed and secure. It is very buoyant and navigable. We have dog food pebbles in the intake filter of our hot water heater. Oh yeah dog food molds faster than any substance on earth.
Don’t be at home with 5 pets when a flash debris flow hits your home. Thank God we weren't
Move all of your out of print cookbooks to an upper shelf.
The word basement is from the German word Rathskeller that I believe is German for this room fills first before flooding your main floor.
In your submerged wine room, move all bottles of wine valued above 25 dollar above your waist. Keep all of you Sutter Homes White Zin on the lowest shelf in your wine room with the corks ajar. This will finally give you a great excuse to throw that crap away.
And if the 7th person you see on January 1st after your catastrophe wishes you a happy new year, do not stab them with your Mont Blanc Pen. It really messes up the fine writing instrument.
We hope this has helped you plan for your investments in 2011. In all seriousness, we are lucky to have a lot friends who really stepped up to the plate. A few actually made it to the war zone and we want to say a special thanks to Chris, Ted, Karen, Dana, Dennis, Jerene, Tom, Joanna, Ben, Lauren, Dan, Linda, The Mormon Church (Really they were a huge help), Bill, Brian, Mike, Al, Margo, Anna, and Neil. If I missed you we love you anyway.
OK, 2010 ended with the Dow at 11,577 indicating a 10.3% return for the year. The S & P 500 did a bit better closing the year up 12.78%. Our indie of choice is the S & P 500 for reasons mentioned here many many times. It closed the year at 1,258.76 so that will be our starting point for our prognostication.
In 2011, we will be looking for a total return (realized and unrealized) of 9.7%. This is determined by looking at the 10 Year Fed rate times 2 and adding about 2.7% in dividend returns on stocks and bonds. We think the volume of cash in the S & P 500 coffers will drive a stock value gain of about 7% along with inertia from stock buy backs and dividend increases. Look for year ending S & 500 of 1,380. Look for a slightly less buoyant Dow figure of 12,618.
Salve Lucrum, Now get to work and get those pictures and films digitized.