Dear
friends,
As
you probably know, U.S., European, and Asian stock markets have been highly
turbulent since late September, and especially since Christmas. According to a
report on CNBC, U.S. equity markets just had their worst 3-day beginning of a
year in American history. You can hear reports about possible causes, but the
collapse of the price of oil, with the likely mortal wounding of OPEC (thanks to
American shale oil production and Saudi dumping in order to lower prices),
surely stands out as a major cause.
As
I have explained before, in an overall bull market, such as we still have, I
follow the cliched advice, “Sell the rips and buy the dips.” I sold off all
sorts of stocks in late December, taking good profits (for one example, in EOG,
Schlumberger, BankAmerica). Then in the bloody first three days, with the
S&P 500 falling hard and fast, I bought best of breed companies. I
especially added to companies that stand to gain from lower oil prices. Because
oil has not stabilized, and could easily fall to a significantly lower level, I
am avoiding all companies directly linked to a higher price of oil. I have no
regrets about selling all of my Conoco, EOG, and Schlumberger, and buying a
sizable stake in Kinder Morgan (oil and gas pipeline and storage, with a large
dividend). My riskiest buys have been back into leading miners, especially Pan
American Silver (PAAS), with a 5% dividend; Freeport copper, molybdenum, and
gold miner with well over a 5% dividend; and the world’s largest miner, BHP
Billiton, now close to a 10-year low because of the slowdown in China, but with
a high dividend that allows me to sit and wait for economies to pick up with the
much lower price in oil. It is hard to believe that the economies of China,
India, Japan, and Southeast Asia, all large buyers from Australia’s huge BHP,
will not benefit as the oil price has been more than halved already. I also
added to an American producer of non-dairy milk, Whitewave; and a financial
service company, riNet, that helps smaller companies deal with complicated
insurance, tax, and other matters. After hearing Cramer’s analysis of the “dogs
of the DOW,” I also re-opened a position in AT&T, whose dividend makes up
for the company’s sluggish growth. (Besides, I have heard men rave about
football on DirectTV, which is now part of AT&T, so growth may be coming.) Apple’s stock took quite a beating (dropping from some $120 a few weeks ago to
$105 yesterday), and the present price provides an excellent place for someone
to begin a position, or add to an under-sized position. Monster Beverage, which
I have strongly recommended in recent weeks, has been the best or second best
performer in the S&P 500 so far this year. Equities drop, and Monster keeps
climbing (the stock has been a monster), because it has what giant Coca Cola
lacks and needs: strong growth. Apple and Monster remain on IBD’s list of best
50 stocks to own, but most of the stocks on the list are small or mid-sized
biopharmas. (I owned Celgene, made quick gains, and sold.)
Such
has been my strategy, which I have used with increasing confidence and clarify
since 2003, after I learned the hard way from a “professional” who profited from
me, rather than helped me. And then today after the close of market I came across
an assessment of our present stock market by no less than Warren Buffett,
perhaps the most successful investor alive today:
“Mr. Market is kind of a
drunken psycho. Some days he gets very enthused,
some days he gets very
depressed. And when he gets really enthused…you sell
to him, and if he gets
depressed, you buy from him. There’s no moral taint
attached to that.”
What
Buffett describes, I have been doing. One can be rational, to a degree, even
when the markets are highly irrational. One learns to profit from markets’
“drunken psycho” states.
What
I recommend is that investors keep a good watch list of companies into
which they have good reasons to invest (plenty of tools are available on the
net, including the excellent tools of Investor’s Business Daily). Develop a
list, and when the markets throw a hissy fit because oil drops precipitously,
and all sorts of non-oil related stocks go on sale, then you buy. I recommend
that you have a high quality American retailer or two on your list; another
company or two which does not lose, but may gain, as oil keeps falling; and if
you are a risk-taker, try one of the extremely out-of-fashion stocks, such as
Freeport (FCX) or Billiton (BHP). Take the dividends, and be very patient with
these stocks. If you like big DOW 30 stocks, consider AT&T and Intel (even
though Intel was up 40% in 2014, it is still relatively inexpensive, and yields
a solid dividend). There are many other good stocks to watch, and buy on a day
when “blood is flowing in the Street.” e can and should profit off of
irrational panic. It is that simple. That is how one invests in stock markets,
benefitting from their fits of irrationality. One must keep his head cool, and
think longer term.
“Good
luck and good hunting.”
