It’s time to get to work.
We’ve learned a thing or two since early October…
When oil is low, it can go lower.
President Trump remains unpredictable.
Equities can fall even when the economy is growing.
Buy and hold can make investors feel like they are Superman holding Kryptonite.
We had the worst December in the equity markets since the 1930s… the worst Christmas Eve trading session in history… the largest point gain on the Dow in history the day after Christmas… and then another fall and rise after New Year’s.
Pick your poison as to why…
It was the trade war.
Or maybe the Fed.
It could have been the transitioning Congress.
It might have been the President.
Maybe the markets had simply gotten too far ahead of economic growth.
Or, more likely, it’s a combination of all the above.
What’s an investor to do?
We’ve spent the last 10 years getting punished for selling the dips. The Fed had our investing backs. If we simply held on, we were rewarded.
That’s so yesterday.
Now the Fed is draining liquidity and every day brings, well… we don’t know what will happen.
Today we need to rediscover our old friend, security selection.
We have several in our stable at Dent Research, from income investing with Charles Sizemore to the portfolio in our flagship publication, Boom & Bust. But today I want to focus on John Del Vecchio’s work.
He brings a unique perspective to investing, and so he comes up with unusual investments, which is exactly what you need in an environment like this.
John earned his stripes by calling out bad actors in the corporate world. Through forensic accounting, he identified companies that were cooking the books, either legally or illegally. Maybe they booked sales when they shipped on consignment, or perhaps the bought back shares to hide a falling P/E ratio. Whatever the case, he’d warn off investors and even sell short.
Finding the good guys…
But that same methodology that identified offenders cast a spotlight on the good guys at the other end of the spectrum.
John can identify companies with high quality earnings, meaning revenue and profits earned by growing their businesses through increased market share and sales instead of takeovers and one-time write-offs.
The best part is that John doesn’t have to focus on the big companies that are included in the major stock indices, which means that his investments can move independently of the market.
That’s a bigger problem than you might think.
The old saying that a “rising tide lifts all boats” also means that a falling tide leaves everyone run aground.
If your investments are included in the stock market averages and also in several exchange traded funds, then when investors get nervous and sell their generic holdings, your stocks will suffer. It doesn’t mean they’re bad, they just got caught up in the crowd.
Which brings me back to the main point.
It’s time to dust off your security selection process and reaffirm why you own your current stock or, if you don’t have a clearly defined strategy, find one with the potential to thrive in a difficult stock environment.
The end of 2018 gave us a preview of what’s to come. It looks like 2019 will be a crazy year. Buckle up!