NET NEW HIGHS?

A reader has asked how I was able to start talking about net new highs a couple of months before the S&P reached net new highs. The answer is simple--good stock selection!

As a general rule, I avoid mutual funds but one of the funds I purchased for a friend last year, TEMFX, an international fund, is up 19% while the S&P is up 13% year over year. My stocks, on average have done much better. In the past 12 months, here are a few of my good selections and the percentage change for the year (not including any dividends paid): FON 39%, GLW 59%, GT 65%, UNH 70%, AMTD 80%, GOOG 200%.

Did all of my stocks do so well? No! I purchased Kellogg for a conservative account and it was up 8% (plus a nice dividend). I owned EBAY that dropped dramatically at one point but is currently down 10% year over year. Lost in this number is the fact that I doubled up the position while the stock was down and actually have a large gain here as well. AMZN was down as much as 18% during the year and I never pulled the trigger to buy more. Never-the-less it is now up 12% for the year.

Note that I have not mentioned airlines. The reason is that I bought most of them in the last 3 to 5 months. The returns have been on average wonderful even though I have down positions in NWAC and DAL. Being down 10% in these is more than offset by being up in the larger positions of CAL, AMR and AWA. These three are up 55%, 65% and 84% respectively.

Yes! This is a fun market! Net new highs are always nice! They are especially nice to have when the second half of the tech boom has just started. The market will not go straight up from here but it will go up over time. A couple of prognosticators whom I respect have indicated that the market may pull back now that the BUSH ROLL will be temporarily suspended.

Yes! President Bush is on a roll! Energy reform is about to pass, the high way bill is about to pass, the budget deficit is dropping like a rock as revenues are surprising everyone, the democrats are fighting old battles and losing them badly. Bill Frist was so bold to bring up gun manufacturing liability reform this week. The cost to consumers are ready to decline due to tort reforms and deregulation. The energy bill throws out antiquated laws passed during the depression and a telecom bill was introduced yesterday that would do the same for communications. Inflation keeps getting hit up side the head with the reduction in costs. The probability of a more conservative supreme court is already built into the market--keeping inflation expectations and bond rates low.

The American economy is sitting pretty; high growth, low inflation, high productivity and an FOMC chairman that is doing his job. A few weeks ago, pundits screamed that Greenspan was bringing on a recession. Today some of the same folks are amazed at the growth in the tech sector. Greenspan is shooting at a moving target and he may eventually miss as he has done in the past--so far this cycle he has been winning every turkey shoot on the circuit.

Yes! The folks who take my advice had net new highs two months ago and have since seen serious increases in account values. We do not think the move is over. The innovation cycle is largely over but over the next few years more and more businesses and consumers will use wireless equipment to save a tremendous amount of time and money. Investors have a rare opportunity to take advantage of an innovation that is as significant as the printing press invention of about 500 years ago!

BUY THE BULL! THE CURRENT SITUATION IS SIMILAR TO THE YEARS OF 1995 TO 1998 WHEN LARGE CAP GROWTH STOCKS OUT PERFORMED OTHER SECTORS. IT WAS ONLY AFTER YEARS OF OUT PERFORMANCE BY THE BIG CAPS THAT THE BUBBLE OF 1999 AND 2000 EMERGED. BUY NOW--DON'T WAIT FOR THE BUBBLE. (BY THE WAY, FOREIGN STOCKS, BONDS AND SMALL CAPS DID RELATIVELY POORLY DURING 1995 THROUGH 1998--DIVERSIFY BUT DON'T HOLD LOSING SECTORS JUST TO BE DEVERSIFIED).

My sources include The Callan Periodic Table of Investment Returns produced by Callan Associates and The Next Great Bubble Boom by Harry S. Dent.