Investment Forum Program for Wednesday, January 31 at 11:30
Topic: Let's talk about oil. It's been an easy sector for individual
investors to make money in recent years.
Now, it's a puzzle. (See
"Barrels of Confusion" published in the January 29 issue of BusinessWeek and posted on the forum
website at www.olligmu.org/~finforum.) Oil stocks are generally selling for low
P/E valuations that normally would be attractive, but there is uncertainty about
the sustainability of their earnings.
And, there's no end of conflicting advice. Wall Street analysts are generally
negative on oil stocks. To the
contrary, famous oil hedge fund billionaire, T. Boone Pickens, is confidently
telling anyone who will listen that the commodity price will soon return to $70
and the good times will roll again.
Joe Quinlan, investment strategist at Bank of America, is quoted in the
January 22 issue of Barron's as
Strategies: Much quoted money manager Jeremy Grantham has his vision of a formula for investment success in the foreseeable future. First, lower your expectations. Corporate profit margins and price-to-earnings ratios are both positioned to decline in his estimation. His portfolio asset formulation is roughly 50/50 megacap blue chip stocks and bonds. Among bonds, he especially favors TIPS. He acknowledges that such an approach will not be especially profitable, but it will provide better returns than other alternatives.
Mutual Funds: Recently, specific mention was made of the T. Rowe Price Capital Appreciation Fund (PRWCX). It was cited for the consistency of its returns over the past 16 years. Well, the discussion had hardly ended when, the very next day, Morningstar.com posted an article entitled "Consistency: An Overrated Virtue in Mutual Funds?" The article stated "It's a mistake to get hung up on the consistency of calendar-year returns when evaluating a fund's worthiness." Meanwhile, a vast river of money is flowing into hedge funds from pension funds and endowments in specific search of modest, but consistent, returns. So, of what virtue is consistency?
Stock Talk: Teva Pharmaceutical Industries (TEVA)
He Said It: John Neff, retired longtime manager of the Vanguard Windsor Fund quoted in the January 29 issue of Barron's: "Gold is not an investment. It's an emotional experience." Separately, A. G. Edwards claims their statistical research reveals a 100-year trend of falling commodity prices, adjusted for inflation.