USA is not a responsible parent!

Do you want to tell me that the politicians in the US could not have handled their problems in a more responsible manner!? Was it necessary to parade their power hungry ambitions in public, demonstrating to the whole world how stupid they are when given their 15 minutes of fame in front of the camera and the world stage?

And after receiving the reprimand from a dysfunctional rating agency (S&P) in the form of a downgrade to AA+, after the same agency was unable to see the debt crisis of 2008, Obama stands up and says that the US will always be AAA!

So now the ignorant world investor is losing his/her money due to the market reaction. US is 16% down and SA 14%. I believe that the US policy makers created this new round of panic selling.

For those who have extra cash to invest, this is a mega sale in Blue Chip companies. Look at this:

• BHP Billiton: trading at same price as in July 2007
• Anglo American: trading at same price as in April 2006
• FirstRand: trading at same price as in December 2005
• Standard Bank: trading at same price as in December 2006
• Old Mutual: Trading at same price as in July 2002

The combined average PE of these 5 companies is 9.86 with a dividend yield of 3.33%. The forward PE is 8.17.

In a newsletter written at the end of May 2011 I said that an equity investor needs to understand that volatility will play a big part in his/her investment. I also wrote that trying to time the market will end in tears and that no matter what happens with the price of a good quality company, you will receive the dividend and the company will continue making profits and eventually you will make a good return on investment.

Please, do not invest in Equities if you haven't got the guts to hold on during the bad periods, and do not invest in cash if you have a longer term time horizon!!

So, unfortunately as an SA investor all the profits for the last 20 months have been erased from your portfolio. Fortunately you will still receive your dividends because most of the companies have strong Balance Sheets and loads of Cash!