Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Weekly Check Under the Hood - Performance & Musings

Posted on | October 18, 2008 Time: 10:21 pm |

All in all, it was another vertigo-inspiring week of ups and downs in the global markets. More of the same for me - smatterings of sleep while various sets of numbers fight for the limited real estate left in my brainpad. On the plus side, I did register the modest achievement of memorizing the names of all the nice folks at international CNBC affiliates in London, Tokyo, Germany, France, Belgium, Iceland, Russia, China, India….It’s nice to know that somewhere in the world, someone else is drinking coffee and wondering just what the new litmus test for “normal” really is.

As a side note, many may have heard by now of Warren Buffett’s op-ed piece from the NY Times where he announces that he is buying U.S. stocks in his personal account. I could happily crow on about the man all day, but there are enough other blogs out there which dedicate themselves to Oracle worship.

I will say that to people who manage money for a living, having Mr. Buffett put his stamp of approval on stock valuations at this level means a whole hell of a lot. There’s probably no more singularly trusted capitalist in the world, and I suggest that everyone read his op-ed on why now is the time to buy American.

Buffett also mentions the likely reality of future inflation woes, simply from all the capital being pumped into the global money mills. It will take time, (likely a year or more) but it is coming…before we know it, the stock market will be looking past deflation and towards money velocity. For now, however, it’s all about the deflationary environment - stocks, real estate, and commodities are all down as risk appetites remain extremely weak. LIBOR rates came down about 40 basis points at the end of the week - a nice start, but we’ll need to see another 100 bp improvement before any of the big stacks of sideline money will enter the equities market.

Secular Trends Portfolio

Now for the frustrating news - despite holding many outperforming individual stocks for the past week (15 out of 22, to be exact), overall the Secular Trends Portfolio lagged the S&P 500 by 180 basis points (2.8% to 4.6% for the SPX) for the week ending 10/17.

The ledger and performance/holdings spreadsheets are kept up to date in real-time, and the Portfolio is now 95% invested after picking up Las Vegas Sands (LVS) late yesterday.

Poor performance from Caterpillar (CAT) and the basic materials outweighed the combined positive contributions of the other 15 stocks. I picked up names like Alcoa, Potash Corp, and Peabody too early in the ramping process; I still believe they will outperform over time but the current earnings season has been terrible for forecasts in the materials and industrials sectors. At this point, it looks like I’ll have to wait about two more weeks before sell-side analysts get their heads around the fact that valuations (current and PEG) are better in materials than anywhere else.

Follow up on Calls, Holdings - GLW, NVDA

  • On Tuesday morning I noted the weakness from Philips NV and Samsung, and predicted weakness for Corning (GLW) shares. They underperformed the S&P by about 7 percentage points for the remainder of the week.
  • Also, following the announcement that NVDA GPUs would be in the new MacBooks, shares outperformed the Nasdaq by about 7 percentage points for the week.

Earnings Next Week

Next week is a big one on the earnings front; I am doing all I can to recuperate after reading through more than 75 earnings transcripts last week. Next week I will be following reports from Caterpillar, Pfizer, Bristol, Schering, Amgen, Freeport-McMoRan, and all their competitors. Phew!

Parting Thoughts

Best of luck out there…it’s very hard to filter through the sheer volume of information being thrown at investors. Some folks are bullish, many are bearish, and many are just looking to stoke emotions (in either direction) for profits. Be watchful for bias, and focus on assessing your broad asset allocations, time horizons, and personal appetite for risk.

Ryan Barnes

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Category: Basic Materials, Investing Philosophy, Sector Study, Secular Trends Portfolio
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