Investment Forum Program for Wednesday, February 7 at 11:30
Focus Topic: Last week a member asked a very pertinent question regarding how investors go about selecting stocks to buy. It prompted a worthwhile discussion. However, upon reflection, a more thoughtful response might have started with the observation that stock picking becomes easier if an investor settles on a clearly defined strategy before going shopping for investments that fulfill his or her personal approach. At the risk of going over old ground one more time, let's start the session by reviewing some of the more obvious choices investors have regarding fundamental strategies.
Stock Talk: Altria (MO), 3M (MMM), and Wells Fargo (WFC)
Buy Signal: Cover stories in major magazines have a remarkable record of providing buy or sell signals, although sometimes in a contrarian sense. The April 17, 2006 issue of BusinessWeek featured a cover story entitled "Blue Chip Blues" with a subtitle that read "Why America's biggest stocks have lost their sizzle and how they might get it back." Since then the S&P 500 index (dominated by megacap stocks) has gained about 12.5% and the Dow Jones Industrial Average has gained about 13%, based on Friday's closing prices. The article predated the market low for 2006 by about two months. Investors who correctly discerned the market low could have exceeded these gains.
Guru Watch: Since his flagship Legg Mason Value Trust (LMVTX) has broken its 15-year record of outperforming the S&P 500 index, Bill Miller has been out marketing. In an interview entitled "Insights from Bill Miller" published on February 2 by Morningstar.com, he is quoted as follows: "We asked him [Miller] what he thought the absolute best businesses were in terms of quality and competitive advantage, and he said Internet companies." "There is an enormous difference between barriers to entry and barriers to success on the Internet. Internet businesses that do beat the odds tend to be easily scalable with very high returns on incremental investment." Miller's fund holds Amazon.com (AMNZ), Google (GOOG), Yahoo (YHOO), IAC/Interactive (IACI), and eBay (EBAY). Investors who want a focused pure play on Bill Miller's investment skills may wish to also investigate the Legg Mason Opportunity Trust (LMOPX).
She Said It: Hilary Kramer, Personal Finance Editor at AOL appearing on the PBS Nightly Business Report on January 31: "We have a stock market that's much too frothy, that's gone up much too quickly." Separately, be advised that on both Wednesdays and Fridays, The Nightly Business Report broadcasts one-on-one interviews with investment professionals who usually offer specific stock and exchange-traded fund recommendations and provide brief explanations for their selections. And, if you miss the broadcast, verbatim transcripts can be downloaded the following day at www.pbs.org/nbr/.