Blessed by the Potato

It’s been a rough, rough month on the market. When I figured we were at the bottom, or close enough for it to not really matter, back in the summer I put the last of the cash I could into the market. These huge drops in the market we’ve seen have been pretty tough to take and just sit by and do nothing. It was a lot easier to sit there and watch 80% of what I own go down knowing I could then invest the other 20% at a better value. Now that I’ve got nothing to do but sit and watch and worry it’s a bit harder. Especially since we’ve broken through the old lows now, so it’s hard to say when it will stop.

I’ve been wondering if I should maybe mix things up a bit. Almost everything, even the “safe” stuff, is way down. Whether it’s actually got an issue in these uncertain energy/credit markets, or if it’s just something that hasn’t been hit so it can be sold to settle a margin balance, it’s probably down.

Q9 and Teranet are both takeover candidates that have a fair bit of upside to them for the takeovers: Q9 is sitting at about a 6% potential return for holding it for another 3 months to the close; Teranet has a hostile bid at $11, pays a ~7% yield on top of that, and could get bid higher, possibly to the $11.50-12 range. They’re both down a little these last few days, but nothing like most other things, and I’m wondering if I should sell them to take my chances on something that’s not fairing as well. From the “safer” side of the street there are trusts like FCE.UN, which is down over 6% this week, and yielding 10%, which compares favourably to the upside on Q9. HR.UN has long been a stable and reliable part of my portfolio, but it’s just been hammered lately; this is probably because it’s rumoured to need to borrow more money in the near future, and with the current credit conditions, that might cost them. It actually raises a good point for trying to do active management in this environment: previously acceptable levels of debt might not be at the moment. Good unleveraged cash flow might be the key thing to look for; or at least have the debt be long-term without a renewal coming up, which is part of why I like FCE.UN.

Another option is to take a gamble on some Canadian banks now that they’re cheap again, and hope that they can avoid the worst of this credit crisis, hope that CMHC will protect them from the Canadian housing market, and hope that they continue their dividend payments. Of course, then I’d have to engage in some bottom-calling again, and while there’s certainly the blood in the streets this time around, moreso than in March with Bear Sterns, I’m a little hesitant to try that again.

As much as I can drive myself crazy thinking of what the best thing to do is, given the current instability I think I’m just going to sit on my hands for a few days. The market probably won’t do anything until the US congress decides what it’s next move will be, and that probably won’t be until Thursday from what I can see.

Fortunately, I can see around the blogosphere that I’m not alone. Mr Cheap at 4 Pillars is reminding us today that the adage is “buy low, sell high” — and baby right now, things are low. CC reminds us to keep faith in stocks for the long term. Eventually, they will turn around; if they don’t, that future will be a bleak and different place anyway. It’s like my dad says: you’re either investing in the stock market, or in a cabin, a gun, a dog, and canned goods. From the look of my parents’ cabin, my dad believes in diversification.