5/2/2013 6:30 PM ET|
10 stocks to own for the long term
Buy and forget is not a viable strategy in a volatile market. But with periodic tweaking, a portfolio can capitalize on long-term global trends.
Ten long-term picks for 2013? In this market? You've got to be kidding. There's just too much volatility.
Precisely. Which is why long-term investing can make sense in this market. All that volatility can give you opportunities to buy great long-term stocks when everybody else is -- for the moment -- running for the hills.
But . . . and it's an important "but" . . . the kind of long-term investing I'm talking about isn't buy and forget. It's not even exactly like traditional buy and hold.
I'd call it buy rarely and sell seldom. But do pay attention to the potential for wild swings in a market ruled by central bank cash flows.
I don't think it matters a whole lot whether you use something as traditional as dollar-cost averaging or a more complex system of market timing. The key is to find stocks of good companies that are positioned to ride trends of 10 years or more. You buy more shares when the companies are out of favor. You sell completely when the company shows signs of losing its way or when the trend itself changes.
If you want to increase your potential returns, you can sell partial or entire positions when the fundamentals say a stock is overvalued or when technical analysis says momentum is fading.
This is the system behind my December 2008 book "The Jubak Picks" (still available from places like Amazon.com and Powell's Books (powells.com). Since January 2009, I've run a portfolio built on this system. Every year, I've done an update, buying five new stocks and selling five old picks out of the 50-stock portfolio.
The update for 2013 is a little late this year -- May 3 -- but in this column you'll find this year's five buys and five sells.
Extreme market volatility
And you'll find something a little different too -- a continuation and extension of something that I introduced into the portfolio in January 2012. In that update I not only gave my five buys and five sells -- but also picked the five stocks from the portfolio that I thought would perform best in 2012. In essence I created a list of 10 long-term buys for the year out of the larger 50 stock long-term portfolio.
In this piece you'll find my 10-long-terms buys (five new buys and five picks from the existing portfolio) for 2013.
Before I go into a summary of this system and the specific buys and sells, let me give you some performance numbers. After all, why pay any attention to this system if the results are terrible?
For the life of that total portfolio -- that's the whole 50 stocks, taking into account annual revisions -- the Jubak Picks 50 has returned 64.4%. That trails the 72.3% return on the Standard & Poor's 500 Index ($INX). The problem? The kind of volatility that has driven so many long-term investors either to other strategies or out of the market completely.
In 2011 commodity prices tanked, and that took the Jubak Picks 50 down, too. The return on the portfolio that year was a loss of 18.6% against a gain for the S&P 500 of 2.1%.
It was exactly that volatility that drove me in January 2012 to create and track an annual portfolio of 10 long-term picks from the larger portfolio. Since the beginning of the Jubak's Picks 50, I'd been advocating that investors occasionally buy and sell inside that larger portfolio, depending on market conditions. But I hadn't given any specific picks to help guide the transactions.
In January 2012, I did. The return on that portfolio of five new buys and five best picks from the existing portfolio came to 16.6% in 2012. That slightly beat the 16% return on the S&P 500 for the year, and it hands-down beat the 6.6% return for the Jubak Picks 50 as a whole.
So with that setup, let's get down to the portfolio and the 10 long-term picks for 2013.
I'm not going to rehash the strategy behind the Jubak Picks 50 here. In a nutshell, the idea was to see if a buy-and-hold-ish strategy would pay even in times of extreme stock-market volatility.
Picking the trends
The premise of my book was that by picking trends with long life spans (10 years or more) -- such as the growing demand for food and especially protein as developing economies get richer -- 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 do 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. For more detail on how the portfolio is built you can see last year's post or dig up a used copy of my book.
In the January 2012 revision, I dropped Central European Distribution (CEDCQ), Deltic Timber (DEL), Encana (ECA), First Solar (FSLR) and Kinross Gold (KGC). The 2012 results for those stocks were, respectively, -50.4%, +17.4%, +11%, -8.6% and -13.3%. The average loss for those five drops was 8.8%.
In the January 2012 revision, I added Home Inns and Hotels Management (HMIN), Lynas (LYSDY), Pioneer Natural Resources (PXD), Weyerhaeuser (WY) and Yamana Gold (AUY). The 2012 results for those added stocks were, respectively, +12%, -43%, +19.2%, +52.3% and +18.8%. The average gain was 11.9%.
Finally, in the January 2012 revision, I picked five stocks from the portfolio that, in my opinion, would be the best performers of 2012. They included Cemex (CX), Freeport-McMoRan Copper & Gold (FCX), General Cable (BGC), Gol Linhas Aereas Inteligentes (GOL) and Potash of Saskatchewan (POT). The 2012 results for those picks were, respectively, +90.4%, -3.8%, +21.6%, -1.1% and -0.1%. The average gain was 21.4%.
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Q: I saw an article last week that I can’t find much info about. Seems Congress voted and passed by a wide margin the ability to trade in the markets again. I thought this had been stopped, members of Congress had to put their holdings in a “passive” account, they could not trade with their “inside” knowledge. What have I missed? ~ Jeff H.
These guys are like sports prognasticators. They give you their picks and pat themselves on the back if they can win 51% of the time. I love how when everything blows up in their face they can read the box score and give a perfect explanation why they made such dumb picks. jim Cramer is the World's Worst...
At least it's not another article about Asian. Jim loves those rice babes!
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