Portfolio Pointers

"Throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was always made in the waiting."
---- Jesse Livermore, Reminiscences of a Stock Operator

• See the following page of this newsletter (click on the bottom of this page) to examine the historical relationship between growth and value stock performance.
  
  
• Don't ignore traditional valuation measures, such as when average dividend yields drop below 3% and P/E ratios soar above 18.
  
  
• Be aware of possible historical parallels: For example in the mid-70s, the market was infatuated with the "nifty fifty" type of stocks. The prevailing wisdom was that these companies would continue to expand at high rates of growth into the foreseeable future. The wisest course of action was to lighten up on these stocks, but very few believed that inflated growth rates & P/E ratios would change. From December 1972 through September 1974 the S&P 500 index declined 42.6% and a typical "nifty fifty" stock like Polaroid went from $130 to $25 per share.
  
  
• Action steps for the prudent investor: Focus on larger economic trends and realize we are already witnessing a transition to a post-bull market. Use these trends as a guide to smart investment decisions. Read books with a focus on economic history, such as Bill Gross on Investing by William Gross; Independently Wealthy: How to Build Financial Security in the New Economic Era by Robert Goodman; The Roaring 2000s: Building the Wealth & Lifestyle You Desire in the Greatest Boom in History by Harry S. Dent, Jr.; Winning the Global Game: A Strategy for Linking People and Profits by Jeffrey A. Rosensweig. Subscribe to periodicals like the British-based Economist.
  
  
• Prepare for Surprises: In the past, the fact that most U.S. stocks are languishing has been a warning of trouble ahead for the whole stock market. Market surprises also provide the best argument for asset diversification.
  
  
• Be Patient: It is also over the longer term (at least 3-5 yrs.) that we can most appropriately structure portfolios. Looking ahead several years sends our investment psyche the signal that investing is not a game but a serious long-term proposition . It also can help reduce fear and greed that can affect our investment decisions at times like these.

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