First up was a recap of the calls on various stocks by the magazine in 2008. They said their long picks were lousy and their shorts were pretty good. I don't doubt what they say but in case it is not clear long picks not being good and shorts picks being good is exactly what would happen when the market drops 38%. I would add that the call to short Fannie Mae, a very good one, probably skewed the overall result.
This makes an important top down point. In a down 38% world it is difficult to find the few stocks that will go up. If you have a diversified portfolio of individual stocks it is not impossible that you end up with a name or two that would go up but going into the bear I was not concerned in the least with finding stocks that would go up. For my money it is a whole lot easier to simply own less of the thing that is going down; that was stocks. If every stock you own went down the same 40% as the market but you only had half the portfolio in stocks then you'd be in great shape for adding value over the entire stock market cycle.
Next up are a couple of stock lists. One was of companies that should be involved with modernizing the US electrical grid and the other list was stocks tied to reducing greenhouse gases. Both of these themes tie in one way or another with Obama's plans. Each theme has a simple to understand bull case with some risks that could derail how they play out in the stock market. There is no question that money will be spent on each area, the variable is whether the stocks benefit as much as some people think. Should you invest in either or both? The answer must be it depends but there is no question that we should all take the time to learn more than we now know and then make an informed decision based on more information.
Lastly a couple of nuggets from the second installment of the annual Barron's Roundtable.
First this quote from Felix Zulauf;
Investors should keep their powder dry. Sit in fixed income. Buy five-year investment-grade corporate bonds in less-risky industries that service daily necessities, such as telecoms, oil and food, and blend them with medium-term government bonds. Check company balance sheets. I wouldn't buy long-term government bonds, except maybe German bonds. My one recommendation for the longer term is physical gold.
Ouch. He also makes a case for the S&P 500 going to between 400-600. Even if you disagree with the people making this call (as I do) it is still very worthwhile understanding the uber bear argument. Ditto if you do agree with Zulauf, you should learn the bull case. Knowing the other side of the trade will either reinforce your opinion or help you realize that you might be wrong.
Also this week was Abby Joseph Cohen's picks and commentary. She made one point that I would say to watch out for. The US was one of the first countries to get into trouble and so should be one of the first to get out of trouble. A point I have been making for a long time is that many other countries (ex-Western Europe) are probably dealing with more cyclical problems while the US is probably confronting structural/secular problems. This does not mean there won't be bear market rallies or that end times are coming, just a slower recovery process than some other places.
The roundtable convened in the first couple of days in January. One of her picks was Bank Of America priced at $14.33 at the time. It closed at $7.18 on Friday. Double ouch. Disliking big mergers is a truism from way back (don't remember where I picked it up) but it will be the right call more often than not. Just something to file away.