Ringing in the New Year

Jan 6, 2012   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets got off to a good start this year.  Perhaps it was a little optimism mixed in with a little institutional reinvesting of cash.  Some key economic indicators came in better than expected and the jobless number continues to show improvement.  Issues in Europe, which have plagued the markets for some time now, were unusually quiet this week.  Regardless, we’re happy the year has started off on the right foot, albeit a little cautious about what lays ahead.

It seems that with the start of every New Year we’re bombarded with predictions for the coming year.  The pundits seem overly assured that their predictions are correct and remorseless in disparaging anyone who disagrees with them.  However, more often than not, those very predictions, which seemed unassailable just twelve months earlier, don’t seem to pan out.  In light of this observation, I came across a study which looked at the ten stocks with the highest “buy” and “outperform” ratings.  Over the course of 2011, these stocks lost 3.5% including dividends, even before taking into account trading costs and taxes.  For comparison sake, the S&P ended the year down only slightly.  Surprisingly, six of the top ten stocks actually lost double-digits with the median falling 12%.  It’s fun to watch the analysts on CNBC, but keep in mind that their collective track record has been less than stellar.

Along the same lines, it is around this time of year that you’ll hear “themes” being bandied about.  Although, they too seem like sure bets, the time horizon on some of these themes can be years if not decades.  Two that come to mind are the aging of the baby boomers and the rise of alternative energy, i.e. solar power and natural gas.  While both are incontrovertible, the first is happening in unexpected ways while the second is taking considerably longer to materialize.  What we’ve come to expect is that themes are valuable for their insight, albeit not for their timeliness.

As the economy muddles along, we continue to look for opportunities that present patient investors with reasonable rewards.  We’re in the process of reviewing our holdings and will look to make strategic changes to the portfolios in the weeks ahead.  Our dominant focus in 2012 will be on finding investments that can offer both capital preservation and safe income, whether that is in bonds or reliable dividend paying stocks.

Now for the story of the week, I have to issue an apology in advance.  It is a bit disturbing for those with delicate sensibilities.  You’ve been warned.  It turns out that Pepsi is being sued by an Illinois man who claims to have found a mouse in his Mountain Dew can in 2009.  Pepsi Co. has chosen a rather unusual defense.  Instead of insisting that it is impossible for this to have happened due to their spotless bottling facilities, etc.,  they chose to bring expert testimony that demonstrates “the mouse would have dissolved in the soda had it been in the can from the time of its bottling until the day the plaintiff drank it.”  This seems like a winning-the-battle-while-surrendering-the-war kind of strategy that hinges on the argument that Pepsi’s product is essentially a can of bright green/yellow battery acid.  It certainly makes me think twice about drinking Mountain Dew.  And now you know the rest of the story!

January 6, 2012: Market Update

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