Living in Florida is different. We think cold weather is anything under 60 degrees. We see flip-flops as perfectly acceptable business casual dress. And many of us get to sail every week.
Each of these things shapes our reality, but sailing does something different. It adds vernacular to daily conversation. As I look at the financial markets and reflect on the forces at work I keep coming back to the same term – the “irons.”
Sail boats do not go upwind, so what happens if that is where you need to go?
A sailboat has to go “close to the wind,” which means the skipper will point the boat 20 degrees off where the wind is coming from. This allows the boat to move forward, but it also means the boat is moving slightly away from the intended destination.
Because of this, every so often the skipper will have to “tack,” which is to change direction when moving upwind. If done correctly, this maneuver is seamless and has a wonderful flow. If done poorly, a boat can end up in “irons…”
What is the dreaded “irons?” That’s when the boat is pointed directly upwind, not in the skipper’s control, and it’s being pushed straight backward.
This is not good.
It’s also exactly what seems to be happening in personal finance today.
The wind is the combined global economy. Currently 80% of the world is in a manufacturing recession at the very least (the U.S. included)… and in an all-out recession at worst.
This does not serve the purpose of investors whose goals include growing and protecting their portfolios.
The Federal Reserve is the wily puff of wind that comes up suddenly from the back of the boat. It gives a little bit of lift but not enough to get the boat cruising in the proper direction. That feat takes strategy.
Investors are the skipper of their financial boat. Most of them simply try to tough out the prevailing winds, hoping that if they wait long enough the wind will change direction.
But what if it doesn’t?
What if this weather pattern stays for a while?
For all of you who have found yourself in irons on a boat, one of the best ways to resolve this is to use the backward momentum of the boat in your favor. Hold the tiller over to starboard or port about 60 degrees, and then be patient. The boat will come around soon enough, then you can adjust your sails and be on your way!
For those working on their personal finances, there is another choice. Instead of simply hoping for the wind to change, you can take a new approach to the situation and leave the world of hopeful growth to others.
The new tack is to steer towards the income-producing equities, those with very nice dividends in sectors or industries with plenty of business… even when the storms arrive. If you position yourself in this arena, not only will you get further ahead, you’ll make better time to your destination AND have the peace of mind to sleep at night.
P.S. Our Boom & Bust portfolio contains several strong income-producing plays set to outperform the yields most other investments will offer in the months ahead. To uncover the ticker symbols of these opportunities.
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Evolution is a phenomenon that has always intrigued me. I find hope in our ability to change… for the better… as necessary.