An Investor’s Shopping List
Stocks continue to push ahead like shoppers with buying on their minds. They market has erased its post-election fainting spell, is even for this quarter and up 15% this year. This resilience is with us despite the daily headlines of unsuccessful negotiations on the tax increases and spending cuts due to expire on January 1. This is quite similar to the hangover from the political squabbling last year over the “debt ceiling.”
That passed as will the current political poker game. Wall Street habitually overreacts to uncertainties and almost any sort of stopgap compromise would produce a relief rally in stocks. Even an inability to resolve anything by New Year’s would not be too climactic as such an interim outcome seems already anticipated in current market valuations. The so-called cliff is really more like a series of hills and no lasting damage will occur if these are climbed soon in the New Year.
Economic signs are encouraging. The Commerce Department just announced its final revision of the complex numbers that make up our economy with growth up to 3.1% for the quarter. This was up from a previous estimate of 2.7%, boosted by growth in exports. Housing starts are finally showing good results and growing consumer spending this quarter should keep growth above 2.5% for this quarter and the next.
Sustained growth near 3% would accelerate the economy. This will be almost guaranteed if the Congress and the White House avoid excessive tax increases and spending cuts. “The boom, not the slump, is the right time for austerity at the Treasury.” That was John Maynard Keynes writing in 1937 and economic history has consistently proven him right.
Even those who may not feel comfortable with his economic theories should admire his record as an investment manager. From 1926 to 1946, a period including the Great Depression and World War II, the endowment that he managed for his college at Cambridge outperformed the U.K. stock index by an average of eight percent annually.
After some initial difficulties caused by trying to time the market, he changed to being a “bottom up” stock picker, building portfolios based on a core of stocks destined for outperformance. This is also my strategy and I have often quoted Mr. Warren Buffett in stating his favorite holding period for a stock is ‘forever.” Lord Keynes usually held stocks for more than five years while stock funds today have average holding periods of 19 months.
He also concentrated as much as half of his assets in five stocks, which he nicknamed his “pets.” I have a third of mine in these five: Apple (AAPL-$526), Novo-Nordisk (NVO-$161), International Business Machines (IBM-$195), Abbot Labs (ABT-$65) and Novartis (NVS-$64). Abbott Labs will divide into two companies in January, moving Simon Property Group (SPG-$156) into my top five.
The remainder of my top ten comprises Franklin Trust (FT-$7), CRBE Global REIT (IGR-$9), Exxon Mobil (XOM-$88) and DuPont (DD-$45). There are other stocks coming up strongly that will be candidates for my top ten and for reader’s investments. These include Aflac (AFL-$54), Syngenta (SYT-$82), US Bancorp (USB-$32), Amgen (AMGN-$88), TJX (TJX-$43), and Blackrock (BLK-$205).
Investors often become fixated on the performance of a minor member of their investments. The largest positions will drive the performance of any investment portfolio. Those that can’t keep up should be retired but solid, performing stocks should seldom be disturbed. That is especially true for Apple.
Investors have a holiday gift from the Federal Reserve; it has pledged to keep interest rates at remarkably low levels until unemployment eases to 6.5%. That will probably not be until 2015, long after the “fiscal cliff” is climbed. Low rates enhance the prospects for growing companies and their stockholders. Sticking with quality positions instead of trying to time the markets will improve results.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. [email protected] 949.494.1376/
800.697.2622 www.crowellroberts.com
