Tuesday, January 12, 2010

Two-Cent Pennies

How did your stocks do today? Did they follow the general path lower, or were you one of the enlightened who was smart enough - or lucky enough - to buy the right stocks at the right time. From an investment point-of-view, today was a good day to buy. Always buy on down days and sell on up days, if you can.

That's how the stock market works - in reverse. You almost have to be counter-counter intuitive to make money trading stocks, although, if you have enough dough, like Warren Buffett, for instance, you buy whole companies, or at least significant enough stakes in those companies that you get a seat on the board and have a say in how the company is actually run.

Buffett's management style is pretty hands-off, unless the man wants something specific. He's a smart, seasoned buyer of companies, putting his money to work at firms which meet his strict criteria. Low profit margins? Out. Unproven technology? Out. Inexperienced management team? Out. We should all be so disciplined and successful, but we're not, mostly because we require more bang for our bucks. Trying to make money with a billion dollars is a lot easier than making good lettuce with $100,000.

Most people have some money in speculative ventures, more in "safe" investments, and probably very little in dividend-producing companies, which are usually the best of breed, by the way. Buffett's companies all return dividends. That used to be the mantra. Now it's "trading, playing and going all in." Wall Street has the little guy by the short hairs, but not old, wise Warren. That's why he's rich and you're not.

Anyway, stocks were off their gains today, putting to rest a swell winning streak on the S&P (5 days? 6? Who cares?)

Dow 10,626.43, -37.56 (0.35%)
NASDAQ 2,282.31, -30.10 (1.30%)
S&P 500 1,136.18, -10.80 (0.94%)
NYSE Composite 7,370.48, -78.57 (1.05%)

Losers beat winners, 4795-1728, almost 3:1, so if you're one of the regular folk, you probably got beaten down today. Doesn't feel very good, does it? If that money was in cash, you'd still have it all. But, you want to play the market, so speculate away and watch your kid's college fund or your own retirement saunter off further into the distance.

There were 299 new highs and just 36 new lows. I've been saying that the highs were close to topping out, and yesterday, they did, with over 900 issues making new tops. Looks like we're in for a downhill ride from here. Watch what happens this earnings season. Money will be heading out of stocks either just before they release their 4th quarter and full year data, or directly afterwards. Whether their reports are good or bad, big money will be looking to lock in profits. Stocks, over the next three weeks in particular, are not going to be good investments.

NYSE Volume 5,231,147,500
NASDAQ Volume 2,268,025,250

This is a great time to be in gold or silver, as is any time. Here's a question? How much of your portfolio is in actual gold or silver? Not an EFT - those are for suckers - but actual phycial gold and/or silver coins, bars, high-end jewelry that can be easily converted to cash at a moment's notice. 25%, 15%, 10%, none? Most people have less than 1% in physical precious metals, and that's a real shame, because, well, gold's up something like 400% in the past 6 years and silver has appreciated nicely as well.

There's a reason for that. It's because paper money and stocks are sometimes worth less today than yesterday. As far as commodities are concerned, gold fell $22.00, to $1,129.30, while silver dropped 34 cents, to $18.36. Oil slipped $1.73, to $80.79. It's still overpriced. But gold and silver just seem to keep going higher. If investors ever get a whiff of inflation (there isn't any, right now), silver is likely to double in two year's time. Gold will probably do as well if not better. People love gold, and there isn't much of it around.

Getting to the title of this post, when is a penny worth 2 cents?

The answer is pretty simple: When the penny in question was minted between 1909 and 1982 (with the exception of 1943, when steel was used in place of copper) and copper is priced above $3.10/pound (rough estimate). Right now, pennies from those dates (95% copper) are worth 2.2 cents in melt value. So, if you can find somebody who will pay you fair value, you can double your money on your old pennies. You can check on how much old pennies are worth here. And if your pennies happen to be from prior to 1959, they're called "wheaties" after the wheat stamping on the backs, before we started putting an image of the Lincoln Memorial on the back of pennies. They're worth even more, because people like and collect them.

You can get an idea of what "wheaties" are worth, here. Expect those prices to rise.

So, if somebody mentions the old adage, a penny saved is a penny earned, you can smile wryly, knowing that it's now 2 cents, and maybe more.

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