Financial guru Dopers: What are you doing with your money in this crisis?

If you are a financial professional, how are you responding to the financial crisis?

Have you kept your money where it was a few months ago?

Are you moving into safer investments, and if yes, which?

Are you moving a lot of your money into foreign currency? (the expected bailout has the potential to devalue the dollar, as I’ve read)

Of course, the necessary disclaimer: This will not be taken as financial advice. I just want to get a feeling of how the professionals are responding/reacting to this.

I’m not a financial guru and I don’t have any money invested anywhere, but my city does. We have about $300K in certificates of deposit. Interest has dropped from a high of 5.5% to 4% in the last couple years, and one locally owned bank refused to renew the CD we had with them. “It’s not worth it”, the guy says. We’re going WTF? Just hold the money for us. No go. Why didn’t he want our money?

  1. Yes.
  2. Because there are some good stocks to be had at low prices, I’m selling some mutual funds and buying some individual stocks. I’m also writing call options on the stock I’m buying to increase the income from those stocks.
  3. Foreign currency is too risky. Some other financial people I know will occasional trade currency, but it with ‘play money.’ I’m certainly not putting any long term money there. I’ve got some foreign exposure with a mutual fund.

Aspiring financial professional checking in. My portfolio is 3/4 in Berkshire Hathaway, as it has been for a long time, and is taking the financial crisis just fine.

Can you tell me what I’m missing here? I’ve never understood which stocks are good for covered calls or maybe just the covered call strategy as a whole. In other words:

Got it. So you are bargain hunting and plan to sell the stocks at a profit later after they go up.

So you won’t be able to sell the stocks at a profit later because they’d be called away from you. You’ve limited your gain potential to the premium and not reduced your loss potential.

So what am I missing?

(And sorry if this is a hijack but the OP asks for input from financial gurus so maybe he/she will find this enlightening also).

Also I’m not a financial guru, but I’m not doing anything to respond to current conditions. All my stuff is in broadly diversified index funds and will remain so until I want to reduce risk as I age.

Well, a stock is good for covered calls if you think it is going to go up or stay about the same in the short term.

Here’s an example. I"ll buy 100 shares of XYZ @ 25 dollars today. That will cost me $2500. Let’s say I buy the 100 shares @ 25 and then sell a $30 covered call for XYZ stock for December @ a premium of $1.00. Option premiums are quoted at a dollar figure which is multiplied by the number of shares. Thus selling a call @ 1.00 means I"ll get $100 for that call option. That then reduces my effective cost of the stock to $24.00 per share since I’m paying the $25.00 share price but also receiving the premium for selling the call option.

OK, what happens next?. Let’s say the stock goes up and is called away from me @ 30.00. I now have a profit of $ 600 (5 dollar per share increase plus the 100 I received from selling the call option.)

Lets say the stock stays between 25-29 per share. I"ll keep the premium I received from selling the call and I am free to write another call option after my December one expires worthless.

Of course, the stock could go down. But I’ve already received $100 which is mine to keep. I can then sell the stock (if I think it will continue to go down) or write another call option after the December one expires worthless if I think the stock will rise in the future.
In this example, I"m not including commission costs or any dividends that you might receive while holding the stock. Unless the stock is called away from you prior to the ex-dividend date, you’ll continue to receive dividends for any stocks you write covered calls on.

Buying individual stocks. I’m working on buy and hold e.g. pension so it makes sense to get high yield ones while they are cheap.

I haven’t changed anything very much. My pension fund money is still being invested in a broad range of diversified assets. I can’t get my hands on it for another 15 years or so, and I’d expect there to be plenty of volatility over that time period anyway.

I run an investment club with some family and close friends. It used to be more democratic but the others have kind of defaulted to me. Not my training but we have done well - not panicking during the dot-com for instance. We’re down about 15% for the current year but the big hitter bottomed out. Cash (CDs) are nearly 25% of the joint portfollio since not much was attractive before the bubble burst.

Financials were sailing, oil was high, home builders and REITs were peaked so we sat on dividends and sold some non-performing stuff. We’re going to be stuck with a lot more cash as our major holding (Canadian coal trust FDG) is being bought out for cash. I’d have preferred the dividend which had just gone up to $10/share!

I watch and read Buffet. He’s heading back to the market. I’m still leery but I’m going looking for preferred / convertibles at a good rate from solid companies. Half the club (3 couples) are in retirement so dividends/interest are high priority. We are risk averse so I don’t plan on additional common stock right now.

I’d wait another six months for a more solid bottom. More stuff is going to hit the media. Then go index funds for a future retirement; individual stocks if you have a strong feeling based on research.

usual disclaimers - Not a professional, not a psychic, YMMV.

. . . I know how the strategy works.

What I don’t get is that you must have determined that the stocks you are currently buying will either remain flat or go up but only to 29. That seems like a very precise determination to make.

Or maybe you are just happy with the smaller profit if the stock gets called away and you don’t worry about the amount you would have made had you not sold the call.

I invest mostly in equity index funds, but I’ll take the occasional flier and buy a call. So, I guess strategies that limit the upside and just put a small dent in the downside are just sort of foreign to me.

Not a ‘guru’, but I’m buying antique furniture. I’ve noticed there’s quite a bit on the market at bargain-basement prices.

I’ve been looking for good companies to buy into for cheap. Like they say, a sinking tide lowers all ships (or something like that) :). This is a great time for value investors. Not sure if we’ve hit bottom yet but I have decided to start adding to my long term holdings.

I’ve also been using options to profit reasonably well from all the volatility. I suppose that falls outside the scope of this thread though.