More About the Daily Market yo-yo

An in-depth look at the markets and my personal approach

In yesterday’s post, “The Markets”, after touting gold, I closed with a promise:

“Next week, we’ll re*ally get into it - thoughts and stock picks in mining, energy, gas, coal, nuclear, infrastructure, utilities, consumer staples, foreign stock index ETFs, crypto, and stocks I wouldn’t touch with a 10 foot pole.”

Biblical basis for investing

Some people think the bible says ‘money is the root of all evil’. That’s not what it says. It’s the love of money that leads to sin. (1Timothy 6:10) A look at the ‘parable of the talents’ in Matthew 25:14-30 tells us that there’s nothing inherently wrong with money. Because the English word ‘talent’ makes us think of gifts, or skills, we can misunderstand this passage. The New Testament was written in Greek. The Greek word translated as "talents" in the New Testament is τάλαντον (talanton). This word originally referred to a weight or balance, and later came to denote a specific weight and monetary unit. In context, each ‘talent’ would be that specific weight of gold or silver - several million dollars worth of gold today.

So this parable is about money. The NIV translates ‘talanton’ as “bags of gold”. Jesus was commending investing and trading and making a profit.

15 And to one he gave five talents, to another two, and to another one, to each according to his own ability; and immediately he went on a journey. 16 Then he who had received the five talents went and traded with them, and made another five talents...

20 “So he who had received five talents came and brought five other talents, saying, ‘Lord, you delivered to me five talents; look, I have gained five more talents besides them.’ 21 His lord said to him, ‘Well done, good and faithful servant; you were faithful over a few things, I will make you ruler over many things. Enter into the joy of your lord.’ Matthew 25:15,16,20,21, New King James Version

It’s ok to invest and make a profit. It’s your attitude toward money that’s important. Job and Abraham were rich in flocks and herds. Solomon was rich in gold.

The markets have been so unsettled every day, and with me personally being right smack in the middle of a huge change in my investments, from mostly cash in T-bills to mostly stocks, I’ll write today about the big picture before getting into my own evolving investment strategy. Remember, this is not investment advice - I’m not an investment advisor.

First, an edit and update to yesterday’s comments on gold. I recommended it, with a caveat, as a good protection against inflation. But I didn’t give any details on ways to buy it, so I’ll share that today.

You can buy gold coins, like American Eagles, and keep them in your safe deposit box or bury them in the back forty, or you can even entrust them to Monetary Metals and get about 4% interest, in gold, when they lease your gold to jewelers, insured one year at a time. Or you can invest in gold miner stocks, or a gold miner ETF like GDX, or an ETF that tracks the price of gold itself, like GLD. My personal pick for a gold miner stock is Newmont Mining (NEM) which is paying a dividend of 2.6% currently.

Now for an overview of the whole concept of stocks in a very basic way.

The stock market is a way for businesses to raise capital by selling shares of stock in their company. Those shares are first sold in an “IPO” (initial public offering). Then they can be re-sold on the market. Buyers can bid to buy or sell at a certain price. It’s like an auction.

Traders on the market don’t have to pay cash; they can borrow against their equity and buy on “margin”. It’s like mortgages in real estate, in that you don’t have to have all the cash to buy a house – you can borrow against the equity, which you pledge to the bank as collateral.

Buying on margin is very risky. If the market drops hard, your margin loan can be called in and your broker can sell your shares when the prices are way down. That’s what happened in 1928-29 – people had been buying on margin with as little as 10% equity.

When you buy a share of stock, you are buying a share in the business. That makes you a kind of ‘partner’ in the business. If the business does well, you will have your share of that. Wouldn’t you like to have a share of McDonalds business?

The ‘P/E’ (Price/Earnings ratio) of a stock is one measure of its value. Businessmen consider a 10% return to be a good investment. A P/E of 10 meets that criterion. Look at it this way: Imagine you were a multi billionaire and you could buy the whole company instead of just some shares. If the P/E stays about the same, your earnings, (10% of the price if the P/E is 10) will get your investment back in 10 years. Everything beyond that is gravy. Dividend paying, low P/E companies with excellent fundamentals are called “value” stocks.

For us little guys, each share of a value stock will return us part of the earnings, one way or another – usually in the form of dividends.

Stocks of newer, exciting companies have higher P/Es because of hopes of rapid growth, even before they have earnings or dividends. Tesla, for example, has a phenomenal P/E of 197! The price is 197 times more than the earnings. If you bought the whole company, and the earnings didn’t go up as hoped, it would take you 197 years to get your money back, assuming they were still in business. Compare that with CAT (Caterpillar), which has a P/E of 16.45 and pays a dividend of 1.52%.

So guess which kind of stock I’m buying right now, on big dips in the market? CAT, of course. As I mentioned yesterday, in retirement I’m more interested in capital preservation and dividend income than growth.

Next, a few words about timing.

I’m just about in the middle of a 180 degree reversal from cash to stocks. Here’s how I’m doing it.

First, I’m identifying which companies I want to invest in. I’ve sold all the stocks I had that were the least bit speculative. (In the near term, we might see a recession.) I’m looking for value companies that I’m confident will still be around 10 years from now, that are reasonably priced, and that pay dividends.

In this up and down market, I’m only buying on down days except once or twice I’ve seen an individual stock I’m watching go down on a day when the markets in general were up.

There is a ‘technical’ way to narrow it down further, and buy the stocks when they’re considered “oversold”.

Look at this chart of Caterpillar (CAT) today, 4/11/25:

The bottom part of the chart shows a technical measure called RSI (relative strength index). When a stock’s RSI is low it’s considered oversold. When high, it’s considered overbought.

The other day, I bought some CAT when it’s RSI was below 30. Assuming a company meets the qualifications mentioned earlier, that’s a good time to buy

BTW, we may have seen the bottom of this crazy market.

Notice on this graph of CAT a little bounce-back to 283 from a low of 267. That bounce happened despite all the bad news and uncertainty about tariffs.. (By the end of the day, the market continued to rise.)

Could the market go lower? Of Course. It could go a lot lower. Do we sell? No. We hold on. You’ve only lost money ‘on paper’. You haven’t really lost anything unless you sell. This is a mistake that many new investors make – the market drops way down, they panic and sell just at the wrong time.

I’m optimistic and planning on buying more, even if the market starts going up.

Things are still really up in the air, but if we’ve seen the bottom and the market starts going up rather steadily, I’ll still be buying, if the fundamentals make sense, because I’m very optimistic about the future.

Over-strict regulations will be more reasonable, AI and robotics will make businesses more efficient, and President Trump is good for business.

Right now, about half of my short term T-bills have paid off and the money is moved into stocks.

I NEVER thought I’d buy on margin, but I’ve done that this week, for the first time. That’s because I saw some real bargains, and I have more T-bill cash coming in a week – so I can pay the margin loan off next week.