1/12/2012 6:54 PM ET|
10 stocks for the next 10 years
After a bearish year, it's time to take a fresh look at my long-term Jubak Picks 50 portfolio -- and zero in on the stocks in it that are the best buys right now.
I've often said that you can't judge a portfolio until you see how it does in both a roaring bull and a raging bear.
Did the market gods have to give me my wish?
My long-term portfolio, the Jubak Picks 50, has done just fine in bull markets. Based on my book "The Jubak Picks" and started on Dec. 30, 2008, the portfolio gained 57.8% in the bull year of 2009. (You'll remember that the stock market bottomed in March 2009.) And it did OK in 2010, too, gaining 20.1%.
In each of those two years, the portfolio beat the Standard & Poor's 500 Index ($INX) hands down: The S&P 500 gained 26.5% in 2009 and 15.01% in 2010.
Then came the bear market of 2011. The portfolio lost 18.59% last year. That's against a 2.11% gain for the S&P 500.
For the three years, the Jubak Picks 50 was up 54.3%. That's against a gain of 48.5% for the S&P 500.
That's an extra 5.8% for the Jubak Picks 50 over the S&P 500. (Yes, the actual advantage would be lower, because the Jubak Picks 50 incurs trading costs that an S&P 500 index wouldn't. But I'm doing only 10 trades a year so, in these days of $10 (or less) trades, we're not talking about a lot of commission costs.)
Is this a good or a bad result? To answer that, you have to go back to the purpose of this portfolio.
A test of buying and holding
The idea was to see if a buy-and-hold-ish strategy would pay even in these days of extreme stock market volatility. The premise of my book was that by picking trends with long life spans -- 10 years or more -- a buy and hold investor could beat the market even if the individual picks used to buy into those trends were sometimes clunkers.
Because markets and companies change, I'd tweak the portfolio once a year -- but not with a very big tweak. I'd sell no more than 10% of the portfolio (five stocks) and buy no more than 10% (five stocks) of the portfolio.
(Those annual changes also lead me to my annual list of 10 stocks to buy for the next 10 years -- which I'll get to in a just a little bit.)
And that's it. No midyear corrections, unless a company disappeared through an acquisition or, shudder, a bankruptcy. No panicked buying or selling. No short-term market timing.
When I started this portfolio, buy and hold wasn't dead, but it sure wasn't looking healthy. Buy and hold was never supposed to be buy and forget, but a great bull market run like the one that stretched from 1982 to 2000 made it seem like all an investor had to do was buy and then remember to add up the profits from time to time.
The 3 bears
The bear markets that began in 2000, 2007 and 2011 have demonstrated exactly how dangerous buy and forget can be. In the first bear, from March 2000 through October 2002, the Standard & Poor's 500 fell 47%. In the second bear, the one that began in October 2007 and that bottomed in March 2009, the S&P 500 lost 56%.
The most recent excursion into that investing wasteland took the S&P 500 down 19.4% (a trifle short of the 20% that officially defines a bear) from the April 29 high to the Oct. 3 low. It had recovered a chunk of that by year's end, of course.
The experience of the first two bear markets left many investors reluctant to buy stocks at all --and the losses and volatility of 2011 certainly didn't do anything to convince them otherwise. The three events have left most of those willing to buy stocks as skittish as whitetail deer in hunting season: never able to relax and always ready to bolt.
But the original advantages of long-term investing aren't extinct, in my opinion. Long-term investors can still take advantage of temporary panics and mispricings to build positions at low costs. They can still put time to work for them by buying the stocks of companies with a high return on invested capital and letting those companies compound those returns over the years. They can still catch long-term trends that can power a company's stock for years without being sidelined by worries about catching the best price.
All that buy and hold needs is a transformation from "buy and forget" to "buy and review." Even a review as infrequently as once a year will do the trick, I believe.
And that's the belief that the Jubak Picks 50 was designed to test.
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Keep your powder dry. Standard & Poor just whacked France. More fun to come!
1. Congress writes laws, including spending bills, not POTUS.
2. Tax receipts are at the lowest level in decades. High unemployent will do that, duh.
When you learn how laws are written, you'll point the finger of blame where it belongs: our do-nothing representatives.
I see your comments almost every week and it's says say the same thing on what people should do.
The next time you mention to people what stocks they should buy how about showing your financial statements showing that you own the stocks that you talk about and people should buy. Or how about when the stocks go "south" and lose money then what do you tell all the people who took your advice. I know what you would tell them "it's a gamble there is not guarantee that the investor will make money
I once saw on TV that three women took a hand full of darts and threw them at a board of stocks and where the darts landed those were the stocks the three ladies invested in. Low and be hold they did pretty good. They made better than 20% on their investment.
So the moral of the comment you don't have to be an expert to pick stock in order to make money.
I was long General Cable for a while, but in my general liquidation of about half of my portfolio in December (because I think Europe will implode sometime in 2012), I sold them off. I like them as a company, but they don't pay dividends. I don't want to sit and hold on a company that doesn't pay dividends.
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