I just got inside from the Pittsburgh Steelers’ victory parade. You see, I’m a huge Steelers fan. Believe me, it’s not easy living in Baltimore.

Don’t worry. I’m not going to gloat. Just indulge me for a minute…

The Steelers represent a different era. The team (at least its symbol) stands for a period in American history when we made stuff. It wasn’t about what we made. It was about making it. I think Byron King of Outstanding Investments — also a lifelong Steelers fan — can explain better:

“Football in western Pennsylvania is more than a game: It’s a lesson about life. It’s not about how big you are, but how hard you work. Kids from WPA did not eat better food than kids anywhere else, or drink tastier water or bask in more sunshine (God forbid!). But kids in WPA knew how to work hard, all day and every day, from watching their dads and uncles and brothers march off to the mills for a couple of generations.”

One of the best examples of this mentality I’ve ever seen was on full display a few moments ago. Just as Troy Polamalu got on stage at the end of the parade route, a fan raised a foam replica of a steel beam. That’s Pittsburgh. The Steelers don’t have cheerleaders or a marching band…just foam “steel beams.”

Back to investing for a minute…

The Financial Phoenix

Over the last few months, we’ve seen one of the most horrific economic catastrophes ever experienced. We’ve watched as bank after bank has crashed into oblivion. Our market spiraled to rock bottom. The question floating around most of the newspapers, TV shows and financial newsletters is how did it happen? But the question they should be asking is why didn’t it happen sooner?

The Western world built itself up over the past few decades on fake money. The principle of our economies was just a numbers game.

Financial companies grew out of the ashes of industry, and we got left holding the smoldering coals. Institutions like Bank of America and Lehman Brothers created new “financial products” like repackaged mortgages, which we came to find out were nearly worthless. You hear these phrases all the time now, but do you think Rosie the Riveter — the famous symbol for women industrial workers during World War II — had her money invested in mortgage-backed-securities? It seems as if industry in this country is dead.

Just ask the hundreds of thousands at (by the time you read this) yesterday’s Steelers rally. These are people who once worked in the world’s greatest steel and coal industries. Now — if they are lucky — they push paper in the health care and life insurance industries.

That’s not an easy transition. But resilient cities like Pittsburgh have done just that. Blue-collar to white-collar to no collar, and hoping for green-collar someday. That’s the sad reality millions across this country are facing, and no one knows that better than Pittsburghers.

Take Byron, for instance. Byron, as you may know, is our resource expert. He predicted Peak Oil years before the financial media even had a name for it. Lately, he’s been looking into several green industries, including geothermal. But when I told him I was going to take a trip to his hometown, he couldn’t resist talking about something outside the energy world.

He too shares my frustration with what’s become of once great industrial epicenters like Pittsburgh. Here’s how he described the Pittsburgh mentality to me:

“Industry in western PA was pretty basic…dig coal, make coke, melt iron, make steel. Forge it into something else. Repeat process. So just driving past the smokestacks, you picked up the essence of what basic productivity is all about. Nothing fancy. No card tricks. Just produce something basic and sell it to the world.”

Unfortunately, it’s been cheaper to buy steel from other countries over the past few decades. The Pittsburgh steel industry collapsed (only a few mills remain). But that doesn’t mean this mentality is dead. On the contrary, people are going to start getting back to the basics in the coming months and years. Actually making stuff is going to make a comeback.

It’s apparent Byron is on the same page. He’s written about the importance of real goods and services, as opposed to paper ones (like Wall Street’s been interested in) many times.

These real products are about to make a big money-spewing comeback here in the U.S. I’d love to get into the details, but I have to jet. Even though Pittsburgh lost its steel industry, there’s still plenty to do.

Sincerely,
Jim Nelson

February 4, 2009

Looking back at the Pittsburgh Steel Industry was originally featured in the Penny Sleuth.

5. Follow the News

This one may seem obvious, but you’d be surprised just how many people choose to ignore current events and still expect to walk away from market catastrophes unscathed.

More often than not there’s some indication of impending doom before giants like Lehman Brothers and AIG crumble. After Bear Stearns’ collapse, for example, Lehman stayed almost flat for a couple of months. While most didn’t think that bankruptcy was as imminent for the latter, it has to be said that the writing was on the wall. And it’s been more than a passing fancy.

4. Understand Business Cycles

Fool me once, shame on you, fool me twice, shame on me…

Every year, scores of investors get fooled into thinking that that history won’t repeat itself again and again. It’s true that historical gains don’t dictate a stock’s future performance, but when it comes to business cycles, revenues fluctuate like clockwork.

If you’re investing in a cyclical industry like retail or autos, then look at the trends; chances are you’ll see them again in the future.

3. Look Somewhere Else

In the beginning of 2008, investors flocked to overseas investments in India and China for good reason – those countries weren’t experiencing a recession!

If the U.S. stock market isn’t an attractive place to put your money, consider sinking some in other places that are enjoying better times than we are at home. Often, foreign stocks are traded on U.S. exchanges as ADRs (American Depositary Receipts), meaning that you can buy and sell overseas issues like China Mobile just as easily as Verizon or Sprint.

China and India are seeing tougher times now, but there are other economies that are faring a bit better… Now’s not a bad time to take a look.

2. Ask Questions

If you’re at a loss of where to put your money in an economic downturn, remember, there’s no such thing as a dumb question.

There are tons of resources available – from the websites you visit to the magazines you read, asking an expert a question is a “nothing-to-lose” proposition. And if you’ve got a personal financial advisor, ask away… that’s why you’re paying them.

1. If All Else Fails

When you’ve exhausted all of your other options, it’s time to fly to quality. In other words, switch from investments you’re in right now to ones that are less risky.

If you’d rather guarantee a modest 3% return than fight it out for higher profits, moving to safer investments is a decent solution until the dust clears. At least you’ll still have money to invest when the bargains start popping up.

Cheers,
Jonas Elmerraji

December 30, 2008

Five Investing Tips for the Economic Crisis was originally featured in the Penny Sleuth.