BlackRock CIO give good reasons for Stocks!
Ten reasons to like U.S. equities: BlackRock | Business | Reuters
It is good to see the above reasons in print. I try to think contrarian when all of the world seems pessimistic. But man, the stuff you read can get to you. I think the first reason is the most important (maybe that is why it is first!):
1) Investor and consumer sentiment measures are very pessimistic, which often marks the bottom of equity market falls.
I have been thinking of writing on this topic of late for one reason. Whenever I read an online article about a company or industry that is of interest I always read through the comments, if available. I am truly amazed at the amount of whiny negativism. You get the feeling the end of life as we know it is here due to, pick your reason: Global warming, subprime mortgages, financial crisis, the FED, oil prices, food prices, corn based ethanol, George Bush, Nancy Pelosi (my favorite), the Iraq war, etc.
Early in my investing education I learned the phrase: The market climbs a wall of worry. I see plenty of “worry” around, so I am feeling pretty good about the future of my stock investments. I have always believed the market was a leading indicator, and it appears the economic slowdown/recession was discounted back in February and March and stock prices are starting to forecast a stronger future economy.
I do see a big disconnect between an economic slowdown and energy prices. I would expect that a recession would reduce the demand for energy resulting in lower prices. However, oil just seems to keep climbing. There are a couple of factors that may be in effect. First, the global economy may not slow much, keeping demand high. Second, energy supply is so tight that an economic slowdown will not reduce consumption enough to generate any surplus. I see high energy costs a reality for the near term future (several years) and well placed energy investments should reap huge rewards.
I think a lot of the financial media and the countless number of commenters have seriously bought into the gloom and doom economic scenario and their concerns will prove misplaced as stocks continue higher.
Beating the stock market
http://blogs.forbes.com/digitalrules/2008/04/two-ways-to-bea.html
This recent blog post by Forbes columnist Rich Karlgaard started me thinking about may methods and plans to generate better than average returns. I like reading Rich because he is a perennial bull/optimist on stocks. Most of the current financial info in the web is so much gloom and doom. Reading the comments to articles on any of the financial sites show a large number of readers who are so pessimistic you wonder why they are even reading investment articles.
I am trying, and writing about it here, to find stocks I believe will out perform the market or competitive investments. Why buy individual stocks unless that is your goal? The article shows 2 investors whose styles have beaten the markets and I work at continuing to define what I am looking for. My style is closer to John Buckingham than Ken Fisher, though I always enjoy reading what Ken has written.
To put my investment style/goals in as few words a possible, I look for smaller cap stocks ($500 million to $2 billion) that have a unique story, growth or turnaround that I think the market is undervaluing. These smaller companies generally do not have much analyst following (1 to 3 is good) and my own judgement about the company may be more accurate.
I collect as much information as I can through the Internet and I really like to listen to quarterly conference calls. I think the calls give you a chance to make a judgement about the abilities of the management team. Every company is trying to grow their business and profits and I like to hear managements thoughts on their progress. After a few quarters you can see if the company is following through on their plans or making excuses about whatever is holding them back.
Finally, I am currently in the stage of accumulating stock. If I find a company I like I may watch it for a while to see if what I think pans out or maybe to price gets hammered along with the rest of the market and i can pick up shares at lower prices.
MarketWatch quote of the day!
This subheadline on the front page of MarketWatch.com caught my eye:
U.S. agriculture department recalls 143 million pounds of frozen beef , most of which has probably already been eaten. (emphasis added)
This appears to be another case of a government agency taking good care of the public. With the market closed today this is probably as good as it is going to get.
Why negative financial news sells
Bill Rempel, a.k.a. NO DooDahs! » Keeping Perspective
I am pretty much of a permanent positive guy when it comes to investing and I try to find companies with positive stories that will make me outsized returns over the longer term. The news however, and many financial blogs are full of recession, crisis of the day/week/month and other negative stories. Bill Rempel, in the post linked here gives the best argument I have seen on why negative financial news is so popular. My favorite line:
The point is, at any given period in time, there is within us the ability to focus on the negative or the positive, and focusing on the negative at any one point in time results in a point of view that, in hindsight, pretty much always looks ridiculous. Unfortunately, our focus can color our reactions, and become self-fulfilling – as anyone who’s ever sold at the bottom can attest.
Humorous investment videos from Blogroll
And now:
Videos picked up from The Big Picture and A Dash of Insight. Enjoy!
Yield Curve Steepens: Thoughts by Mark Hulbert & myself
Mark Hulbert has commentary on Market Watch.com concerning the steepening yield curve. To summarize his comments:
- A steepening yield curve historically reduces the probability of recession.
- The bond timing newsletters he tracks are not making a big deal of the change in the curve.
Overall, the impression is the change in the yield curve really hasn’t affected the pundit’s thinking.
Jeff at a Dash of Insight has a post concerning fears of the CNBC types, without seeing the big picture.
My thoughts:
The recent credit/mortgage scare will scare the majority of new mortgages to 30 year fixed for the main reason people have gotten 30 year fixed mortgages in the past: no surprises. If shorter term rates end up well below longer term rates, adjustable rate mortgages will have a significant advantage, however only the very sophisticated or more aggressive will be interested in the savings vs. future possible rate/payment increases.
If adjustable rate mortgages are sold/written without overly aggressive “teaser” rates as the start they can be less costly even with resets in a normal yield curve environment. Remember adjustables can be reset to lower rates also.
I think a higher demand for 30 year fixed mortgages could actually push up rates at the long end of the curve. And if the Fed cuts at the short end a few more times we could see a significantly higher spread between short and long rates.
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