Dykstra: Slow & Steady

While we can do little to prevent becoming a victim of corporate downsizing, we can better appreciate the need to resist spending money we do not possess, or making the assumption that the money will continue to flow downstream. Failure to recognize these seemingly simple ideas can result in devastating consequences that I saw all too frequently in my previous profession.

Granted, professional baseball players can earn millions upon millions of dollars. But don't lose sight of the fact that even a hugely successful baseball career ends at the young age of about 35. Unlike most other professions, there is a guaranteed endpoint to your baseball career. Most of us become comfortable with our lifestyle, particularly when it is good. But if there is no consistent cash flow coming in, eventually there will be a lifestyle change. Translation: no more robes and room service.

Downgrading one's lifestyle is difficult at best; yet, some of us are forced to do so because of lack of knowledge, poor decisions and sometimes just bad luck. Nevertheless, I would like to provide information which hopefully will increase your knowledge base and allow for more informed decisions. To that end, I spoke about in-the-money calls strategy last week, something I will continue to discuss in the coming weeks.

This week, the strategy leads us to Dow Chemical (DOW Quote).

With a forward price-to-earnings ratio of 8 and a return on equity over 35%, this high-quality chemical company is a bargain at its current price of $43.17.

Again, my strategy for in-the-money calls is to employ them when companies with solid fundamentals are being (in my eyes) overly punished by Wall Street for one transgression or another. My theory is that this overreaction will eventually be corrected as the value of the company reasserts itself. Remember, we are only investing in rock-solid companies. We are putting ourselves in position to capitalize on a bounce, then we lock in our profit; Symantec (SYMC Quote) being a good recent example.