Friday, December 10, 2004


In the early 80's, I read "Finding the Next Super Stock" by Ken Fisher. He immediately became one of my favorite gurus. One of the things that he understands is that when the sentiment for a stock or the market is far more negative than the actual numbers, it is time to buy and, conversely when the sentiment is far more positive than the actual numbers it is time to sell.

In his recent articles in Forbes magazine, he has detailed just how negative European thinking has become. Similarly, he notes that Americans are on balance very negative about the market prospects for 2005. He notes that although everyone seems to know that the first year of a presidents second term has averaged low returns; the public does not seem to realize that this first year is anything but average. It is usually a very strong year or a very weak year.

Based on his study of the yield curve, he forecast a very strong market for 2005. I have often written that one key to good investing is to never fight the treasury yields. Today we have a highly unusual situation. Short rates after 4 months of increases are still historically low. The economy is still being stimulated! At the same time, productivity is so strong that inflation is relatively tame. The bottom line is simply that stocks are paying more than bonds. Any stock that has a PE of less than 16, is a value stock in today's market. Mr. Fisher reports that when the yield curve shows a spread of greater than 2%, the market is typically positive for another 2 to 5 years.

I continue to trade away from high flyers. I have added several lower beta stocks to my portfolio in recent weeks. I have mentioned them in previous blogs.


Jack's Old Merrill Pal said...

Read the article in the WSJ regarding the "Continental Europeans and their lack of desire to spend. Of course they compare themselves to us and as every fasionable American hater these days comments on our lack of savings rate.

They fail to mention the home ownership diffences between the two. The US for the 20th century created a great deal of wealth of home ownership whereas the Europeans have very little home ownership.

Interestingly one european in the Northeast used a home equity loan to buy additional property in Florida. Of course these numbers are excluded from our savings rates.

Jack Miller said...

This morning CNBC did a piece on the Vail Ski Resort. Their business is growing better than 10% per year because all the foreigners are invading and Americans are staying home. A friend of mine who used to ski in Switzerland laughs and says he can't afford it anymore. He can but who wants to pay 80% more?