What Stocks Should I Be Buying Right Now?

May 12, 2011 - PRLog -- Earlier this month (May) I began to research and look for individual companies’ stocks to buy in the Marketocracy mock portfolio I manage. Right now, the cheapest stocks are the large companies. However, I don’t buy many large companies because of the debt they choose to carry. Currently, the 2 largest sectors I own are health care and information technology, followed by industrials. Other than those 3 sectors, I can’t really find stocks that I would consider worth buying. And really 80% of what I have is strictly in the health care and information technology sectors.

This means that the experts in Wall Street believe that health care and information technology companies will not see their profits grow as fast as many of the other sectors. That’s OK by me. I picked out companies that I believe will rise above their respective sector (health care or information technology in this case) and produce profits at least as good as any other sector. That is what I have been doing for 8 years now, when I go to pick a stock. It has worked great, so far.

I use a value (fundamental) based approach to buying stocks. A study by AQR Capital Management, a hedge fund, found that the American stocks with the best momentum outperformed those with the worst by more than ten percentage points a year between 1927 and 2010. The article also mentioned that the momentum stocks are the biggest losers in a bear market. Over the years, there have been many studies in the Financial Analysts Journal that demonstrate that aggressive momentum strategies work best in a bull market whereas value strategies work better in a bear market.

Many of my competitors focus on momentum stock investing. And some of them outperformed my value stocks leading into 2008. But when 2008 hit my value stocks went down 27% and theirs went down as much as 50% or more. I continue to focus much of my energies in devising investment strategies to first avoid big losses, rather than trying to get big gains. Why? Because big losses hurt more than big gains help!

Gold
Our last men’s Bible study we definitely spent a moment discussing gold. The popularity of gold is something I never thought I would see when I first went to work at a precious metals company (my Dad’s) in 1998. When I worked at my Dad’s company most of mainstream America thought what I was doing was crazy. People I went to Georgia Tech with, and studied finance were getting jobs at Merrill Lynch and other banks or financial corporations. Now, here we are 13 years later and “mother Merrill” doesn’t even exist anymore and gold is probably the most talked investment. If you don’t own gold now, or plan on buying some soon you are crazy. My, my, my, how things change.

The first quarter of most years is a weak period for gold but this year from February 1st through April 30th gold went up about 18%. This tells me that we are still firmly planted in the gold bull market. There is no sell signal in sight for my clients’ gold position. Gold is just getting cranked up, in my opinion, and I think we are going to see gold hit $1,600 soon. However, I couldn’t feel good about my writing unless I advised you of the importance of having an exit strategy from this beautiful yellow metal. It won’t go up forever and a crash is probable because of human emotions.

The US Government’s Decisions
Standard and Poors recently got the message and announced that the USA’s outlook has been cut to negative. The graph above of the growth of the monetary base is astounding. I am not attaching this graph to say that I know where certain investments are going or that this is going to cause something. The point of me pointing out all of the money creation by our government is just to say that it is not a really responsible decision. However, before we criticize them, let’s look at the plank in our own eye.

Do we make decisions only considering the short term? Think about it. Aren’t there many abortions performed because people don’t want a baby right now? Don’t people get tummy tucks, rather than starting to make healthy decisions? Don’t we buy things; we don’t need, on debt because we want it now? What about affairs? Do spouses commit adultery because they can’t control their lust in the moment?

Few of us, always take the disciplined high road because of the short term pain it can cause or the delayed gratification. The US govt. is no different!

# # #

Eleven Two Fund Management is a Registered Investment Advisor (RIA) located in Marietta, GA. We are proud to be working with Christian Individuals, small business owners, and Families in over 16 states.