JR Snell Capital Management, LLC

My wife is an aficionado of the second-hand; a fiend for yard sales, flea markets, estate sales, and the like. It’s not a bad thing like many people might think. Mainly because the major difference between her and the people you see on television collecting diapers and cat feces is that 1.) She knows what she’s doing, 2.) She has limits, and 3.) She loves what she does.

Oh yeah, and she’s damn good at it. Seriously… like professional-grade damn good.

Yes, she has rules too. One of her rules is that if something’s coming into the house, another item must go out. We’re way past the “accumulation” stage of our lives and we’re now in the “upgrade” stage.

(My rather crude translation of this is, “You can’t put ten pounds of sh** in a five pound bag”, but now that I’ve actually written it down, it doesn’t sound very bright.)

Another rule is that it has to be actually worth something. You would be surprised at the amount of good stuff that some people will practically give away. I can’t figure out why people do this, but they do. Too tired? Too lazy? Just way too sick of looking at their own junk? I have no idea.

But because these people are out there, my wife never goes anywhere without a jeweler’s loupe and a diamond tester. These are admittedly odd things to keep in your purse… but the payoff can be handsome for the trouble. That and she’s addicted to the hunt.

And all along the way of the Never-Ending-Great-Treasure-Hunt that her travels are, along with the gold and platinum and various diamonds, rubies and what-not gems and doo-dads and unwanted heirlooms come the oddball bits and pieces of the equivalent of the precious metal family’s loser child: Silver.

Her silver hoard was mostly represented by orphan spoons, charms, bracelets, candlesticks, and the like that have kind of come along for the ride like barnacles on the Cutty Sark. But every now and again, even the great sailing ship comes in to dry dock to scrape off the barnacles. And such it was recently for the accumulation of silver whatsits and doodads that she decided the time was ripe to be unceremoniously “scraped off”.

And in the “scraping off” process, she matter-of-factly inquired of me about the price of silver. Out of curiosity I suspect because she’d heard a blip about it on the news. Even though I don’t personally trade commodities, I still keep a sideways eye on them because they can occasionally affect the stock and bond markets and at the moment they seem to be on everyone’s mind. But I only peek out of curiosity, or if someone asks me about something commodities-related and I need to sound smart.

I was thinking it had been somewhere in the $20’s, but I was wrong… very wrong: Silver had gone vertical. After about thirty years of languishing between $5 and “who cares”, the loser child had suddenly gotten a PhD! It was almost 50 bucks an ounce. Of course, I had to check a couple of times… but, yep it was closing in on $50.

So she hustled “the hoard” down to a friend who owns a jewelry store that buys such things for a percentage of the melt value. She had a quicker step to get down there this time, I suspect because the price of the stuff seemed a bit out of line with reality. But, other than that it was all rather routine and typical. She’s a frequent customer.

The deal was done, a check was pocketed and it was back to business as usual for the Never-Ending-Great-Treasure-Hunt that her travels are.

And during the next two weeks (right up to today even) the price of silver has collapsed. It’s lost about a third of its value: It was around $48-plus an ounce and now it’s in the low $30’s. It’s been an historic selloff… dramatic and speedy.

I know my wife doesn’t care. She accumulated a large position at cheap prices over a long period of time. She then sold her entire position, without emotion when the market appeared to have lost its senses. And then she moved on to “business as usual” without another thought.

She just executed the perfect trade.

cash, humor, investing strategies, investments, market timing, merchandise, strategy, timing

Yesterday, I had a client mention to me that I had “been busy” lately… which is code for “making his portfolio a lot of money recently”.

Since we don’t believe in the old-school “buy-and-hope” investment strategy (see “How Investing Got Broken”), we tend to sit around for a while (usually in cash) waiting for opportunities… and then we strike and sometimes make a whole year’s worth of returns in a few months… which is a little bit of what happened recently.

In it’s simplest form, asset allocation for most people means that they hold varying percentages of different asset classes all the time. The theory is that when one asset class performs poorly the other asset class will be performing well… thereby smoothing out the bumps… and unfortunately, guaranteeing mediocrity.

Our approach is a little different (see “How We’re Fixing It”) because we prefer to sit on the sidelines until the time seems reasonable to make a move. We don’t feel like we have to be doing something for the sake of keeping busy or pretending that “busy-ness” is the same as profitability.

In an off-the-cuff moment to my client, I equated our management style to that of a hyena stalking prey. We sit in the grass off of the side of the path watching and waiting for an easy opportunity to pass by. We are conserving energy (capital) while we wait so that we will have the energy (capital) to pounce immediately when opportunity presents itself.

There can be long periods of solitude followed by intense periods of feasting, but there is also relatively little risk to the hyena’s life. And this fits our style nicely, thank you.

buy and hope, cash, investing strategies, safety, strategy, timing

I’ve gotten a fair number of questions about this Roth IRA conversion that’s going to be available to all IRA owners next year.

The basics are that you will be able to convert all of your regular IRA-type accounts over to Roth IRAs during 2010, regardless of your income level. The million dollar questions is, “Is it a good idea?” … and I can’t provide an answer to that question.

So, what good am I? Well, I brought it up didn’t I? Ok… actually, I’m willing to be the “go-fer” between my clients and their accountants… but they and their accountants have the ultimate say  whether it’s a right thing to consider… that’s what good I am.

Just to get the ball rolling, I stole an article that’s got way too much detail about the whole issue… It might be confusing to us mere mortals, but your accountant will probably be interested in it. So, read – copy – print the attached article and then pass it on to your accountant.

401-k, cash, investing strategies, IRAs, rules, strategy

Occassionally, for one reason or another I’m forced to take a moment and tame some of the squirrels that are running on the treadmills of my mind.

My most recent session was prompted by a friend who wrote me an email asking about an article she’d read. The article discusses the French Revolution and how the government ran their printing presses churning out money to the point that it destroyed their economy and precipitated a revolution.

Actually, rampant inflation is just about the one thing that the common folk just can’t take. Not only did revolution in France present the opportunity for Napoleon to jump onto the world stage, a similar situation in Germany after World War I put the German economy in such a rotten place that Hitler’s promises of prosperity at any price resonated with a desperate populace.

So, yes I think by trying to print ourselves out of the current crisis we might be putting ourselves in a precarious position… but I differ a bit from the article because I think we will probably recognize this as our next problem before anyone goes to the guillotine. The next solution becomes to raise interest rates and keep them elevated for an extended period.

I imagine that this will be necessary, but in the process it will dampen our future economic prosperity for a very long time to fight some very stuborn inflation. I feel certain that our leaders will choose this option over revolution.

Anyway, here’s the meat of my reply to her email:

Interesting… Obviously, I’ve been a huge fan of cash the past 16 months or so! It’s funny also because adding TIPS (inflation protected treasuries) is a part of my “Going Forward” plans that I’m presenting to clients next week.

As for gold… Well, I just can’t quite stomach it at $1000 per ounce… I’m feeling it’s a bit like oil at $145 per barrel last summer. Everyone said it was easily going to $200.

I look to implement a lot of the ideas from the article.  But I’m hoping to do it in a manner that doesn’t just kill my client’s prospects forever if we are wrong. Everyone’s uncomfortable right now and maybe even a little bit scared, so I don’t want to do anything too radical, no matter how rational it sounds at this moment. Sometimes these decisions and rationalizations that are made during very turbulent times end up being huge mistakes and we look back and can’t imagine how we thought such thoughts.

So, I’ll march forward incrementally. At present, I’m thinking that we’re probably looking at some serious deflation for a while and then a very muted, long term half recovery that could stretch out to a decade or so.

This leads me to a place where cash is king at the moment for most of our money. But, somewhere in the future there is going to be the opportunity, as interest rates rise, to buy these TIPS and hunker down for the possibility of some real ball-busting inflation.

Fortunately, these things usually unveil in slow motion. So slow in fact that people begin to dismiss their earlier premises and question their previous conclusions even though they are probably still correct.

As an example, I thought the housing market and the stock market were overpriced going back into late 2005. But, after another year-plus of both markets continuing to escalate, it was only reasonable that I doubted my own previous conclusions. I was right, but early. Being too early is the same as being wrong as far as our pocketbooks are concerned and I was on the edge on this one. Honestly, it coulda’ gone either way.

So this is kind of my big-picture picture. What I don’t say in the above letter is that while the economy may stagnate for the better part of a decade or more, I firmly believe that the stock and bond markets will experience continued strong rallies and significant selloffs. It’s not a longshot bet that the stock market will end up right where we are today in another decade or two.

If that’s the case, I wouldn’t want to be a “buy and hold” investor, but if you’re willing to be nimble and cynical, there’s a lot of money to be made during this whole period of economic malaise. If you need an historical precedent, go back and look at a chart of the market during the Great Depression after the initial, monster selloff. What a great time to be an investor with actual cash!

All we have to do is have some cash left at the end of the monster selloff that we find ourselves in today.

buy and hope, cash, credit crisis, deflation, investing strategies, investments, market timing, stocks, treasuries

OK… The world is not coming to an end already…. Yes, we have problems… Yes, they are serious… and yes, they will take years (probably many) to resolve.

We have some massive deleveraging as a country and as individuals to work through. Deleveraging is painful, whether you are a nation or a household. As we pay down debt (individually and collectively), those funds have to come from somewhere… Maybe they come from curtailing our spending, maybe we curtail our investing and saving.

If you can think about what you would do personally if you find yourself having to “de-lever”, then you know exactly what is happening with our economy. You know why spending has evaporated, why no one is buying cars, or houses, or Rolexes right now.

You see, it’s not just that credit has tightened up, it has. But, I think we have to recognize that the demand for credit has evaporated as well. It’s for this reason that I believe that simply making credit more available will not solve our problem… We all have to de-lever… pay off debt, pay down mortgages, get off the credit cards, etc.

It doesn’t matter whether you personally find yourself in the position where you must de-lever. If you don’t, your neighbor probably does and the country definitely does… and this is what matters: There’s A LOT of it that is going on.

The solution? Time. Time for Americans to do what they’ve always done: Get up in the morning, work hard and pay our bills. We will take the kids to school and soccer practice and buy a house or a car if we need it.

And we’ll do this all the while and over and over and over until the problem solves itself. It will solve itself because it will all be done with a new attitude, one of frugality and a new conciousness of the difference between a WANT and a NEED.

Maybe we can learn the lessons that our ancestors learned during the Great Depression without having to plumb the same depths of despair.

Frankly, what we don’t need right now is the excessive hand-wringing and scare-tactic speeches that our President has been making as a ploy to get his package passed. And we don’t need the media hype and horror stories thrown at us every single day. We get it… the economy sucks.

What we do need to do is to stop, take a deep breath, relax and to look around. Most Americans are working, have good jobs and are not in trouble with their mortgages. Most Americans are already doing what needs to be done to get us out of this thing. We’re a lot more resilient and creative than ‘they’ think we are!

bailout, bank failures, cash, credit crisis, interest rates, investing, investments, rescue, safety

After a record number of bank failures recently, an enterprising plumber in Florida has finally come up with a solution for where Americans can safely “bury” their cash. My thanks to The Midnight Gardener.

bank failures, cash, credit crisis, safety