Think about all of the trends you’d like to forget: leisure suits, shoulder pads, disco, rollerblading. The fallout typically involves photographs that find their way to the internet 20 years later, possibly injury, or even the regrettable one night stand that haunts us every time you hear Spandau Ballet’s “True”. Trends can also come back to haunt us as investors.
I’ve never been a momentum guy or technical guy, and certainly not a trend guy. I’m just too uncoordinated. Besides, it seems that once everyone starts jumping on a trend, it’s done for the most part. If you follow the rest of the lemmings, you will soon have your rear end handed to you in a Ziploc bag with your name written on it with a Sharpie.
The cloud. Energy MLP’s. Treasuries. Oh, and gold…the mega trend of the decade. Did you finally break down and go long GLD in September 2011 because EVERYONE said the shiny, yellow metal was going to $45,000 an ounce because a huge, cataclysmic collapse was coming? Congratulations, you’ve given back 12% of your money. But it’s OK. You’re still getting a dividend, right? My bad, GLD or Krugerands buried in Ron Paul’s back yard don’t pay a dividend. But you can always trade it for some ammunition or water at the displaced persons camp underneath the interstate after the huge upheaval.
Look folks, I’m sure there’re many of you reading this who did make money on commodity trends or surfing other investment waves. God bless you. But I’m also willing to bet that a lot of you didn’t. Let’s remember Einstein’s definition of insanity: doing the same thing over and over expecting different results. If you’ve been chasing investment trends since the tech boom of the late 90’s and you’re still working with the same $10,000 in your Ameritrade account, but down the crack pipe and get help. It’s not working.
What works? A process. Look at Benjamin Graham. Look at Warren Buffett. Look at Mario Gabelli. Look at John Calamos. Why are they the greatest of the great? They have or had a definitive, disciplined process. Were they correct 100% of the time? No. But, they’re more successful on a consistent basis because of their process. Warren Buffett didn’t just throw a wad of money at IBM because he figured that Berkshire (BRKA) needed some tech exposure and he kinda new the name. He, and the rest of the big brains at Berkshire, used their process and came to the conclusion that IBM would be a good addition to Berkshire’s portfolio because of the different criteria that Berkshire looks for in a holding; strong cash flow generation, high quality, well known franchise, excellent management. If Buffet had just wanted some tech exposure, he could’ve just bought a tech ETF. Of course, as soon as the talking heads caught wind of that trade, the ETF share price would’ve spiked like Stephen Tyler’s blood alcohol level after falling off of the wagon. And what would happen? The lemmings would jump on the trend.
Even the stodgy, boring Dow Jones Utilities went through a bit of a trendy phase last year returning an astounding 19%. If you put new money in that space are you paying too much? Maybe. So, avoid the trend trap. Find a big name with decent fundamentals that’s cheaper. Southern Company (SO) trades at 18 times earnings (expensive for a utility) and yields 4.2%. Exelon (EXC) trades at around 10 times and yields 5.3%. An 80% discount in P/E and a pickup of 130 basis points in yield makes more sense and may protect you from the market handing you the aforementioned Ziploc bag.
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Yieldpig, Copyright © 2012 All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Yieldpig does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment Communications from Yieldpig are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of Yieldpig, and should not be construed as an endorsement by Yieldpig, either expressed or implied. Yieldpig is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results. s should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question
I’ve never been a momentum guy or technical guy, and certainly not a trend guy. I’m just too uncoordinated. Besides, it seems that once everyone starts jumping on a trend, it’s done for the most part. If you follow the rest of the lemmings, you will soon have your rear end handed to you in a Ziploc bag with your name written on it with a Sharpie.
The cloud. Energy MLP’s. Treasuries. Oh, and gold…the mega trend of the decade. Did you finally break down and go long GLD in September 2011 because EVERYONE said the shiny, yellow metal was going to $45,000 an ounce because a huge, cataclysmic collapse was coming? Congratulations, you’ve given back 12% of your money. But it’s OK. You’re still getting a dividend, right? My bad, GLD or Krugerands buried in Ron Paul’s back yard don’t pay a dividend. But you can always trade it for some ammunition or water at the displaced persons camp underneath the interstate after the huge upheaval.
Look folks, I’m sure there’re many of you reading this who did make money on commodity trends or surfing other investment waves. God bless you. But I’m also willing to bet that a lot of you didn’t. Let’s remember Einstein’s definition of insanity: doing the same thing over and over expecting different results. If you’ve been chasing investment trends since the tech boom of the late 90’s and you’re still working with the same $10,000 in your Ameritrade account, but down the crack pipe and get help. It’s not working.
What works? A process. Look at Benjamin Graham. Look at Warren Buffett. Look at Mario Gabelli. Look at John Calamos. Why are they the greatest of the great? They have or had a definitive, disciplined process. Were they correct 100% of the time? No. But, they’re more successful on a consistent basis because of their process. Warren Buffett didn’t just throw a wad of money at IBM because he figured that Berkshire (BRKA) needed some tech exposure and he kinda new the name. He, and the rest of the big brains at Berkshire, used their process and came to the conclusion that IBM would be a good addition to Berkshire’s portfolio because of the different criteria that Berkshire looks for in a holding; strong cash flow generation, high quality, well known franchise, excellent management. If Buffet had just wanted some tech exposure, he could’ve just bought a tech ETF. Of course, as soon as the talking heads caught wind of that trade, the ETF share price would’ve spiked like Stephen Tyler’s blood alcohol level after falling off of the wagon. And what would happen? The lemmings would jump on the trend.
Even the stodgy, boring Dow Jones Utilities went through a bit of a trendy phase last year returning an astounding 19%. If you put new money in that space are you paying too much? Maybe. So, avoid the trend trap. Find a big name with decent fundamentals that’s cheaper. Southern Company (SO) trades at 18 times earnings (expensive for a utility) and yields 4.2%. Exelon (EXC) trades at around 10 times and yields 5.3%. An 80% discount in P/E and a pickup of 130 basis points in yield makes more sense and may protect you from the market handing you the aforementioned Ziploc bag.
Follow us on Twitter...@Yieldpig
Yieldpig, Copyright © 2012 All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Yieldpig does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment Communications from Yieldpig are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of Yieldpig, and should not be construed as an endorsement by Yieldpig, either expressed or implied. Yieldpig is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results. s should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question
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