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Jewish World Review
June 10, 2009
/ 18 Sivan 5769
Best stock buys passed quickly, even for pros
By
Gail Marks Jarvis
http://www.JewishWorldReview.com | (MCT)
No-brainer bargain stocks have been picked over.
Just as individuals are starting to develop the stomach for investing again, professional investors say stock-picking has become a challenging endeavor.
The best deals evaporated so quickly in the rally that followed the early March stock market sell-off that even the professionals missed out on many of them.
Gathered at a Morningstar convention recently, some of the most renowned fund managers were asked to tell an audience of investors and financial advisers about mistakes they made amid the 56 percent plunge in the market. One of the most glaring: They didn't buy enough or fast enough.
Like the average investor, fund managers struggled to make sense of what was occurring, and emotions got in the way.
Wally Weitz, manager of Weitz Value fund, said that as he awoke each day during the market plunge, he wondered what former financial Goliath might disappear. Stock prices were attractive, he said, and, "It would have been fun if it hadn't been so terrifying."
Christopher Davis, manager of the Clipper and Selected American funds, said his grandfather used to say, "You make most of your money in a bear market; you just don't realize it at the time."
For investors who put money to work around the March 9 lows, that is likely to turn out true. As an example, Davis says he was able to pick up the market's top-quality stocks, like Johnson & Johnson, at prices not seen in a lifetime of investing. "These are the sorts of things you can buy and put away."
Now that the stock market has climbed roughly 40 percent since early March, the low-hanging fruit has been picked. Investing doesn't seem as scary, but it requires deeper analysis and provides less clarity on value.
You could see the lack of conviction at the Morningstar conference as mutual fund managers described what they are buying now and why.
During most years, financial advisers use the conference to pick up on common themes and sectors embraced by the fund managers who speak. After the worst of the 2000-02 bear market, for example, numerous managers were singing the praises of technology companies beaten to cheap prices after declines of 70 percent or more.
But this year an investor would have been hard-pressed to find a common view among the pros other than the belief that the worst of the financial crisis has likely passed and that the economy will show lackluster growth for several years.
The view is what Pimco bond fund manager Bill Gross calls the "new normal," or a period of perhaps a decade when the economy won't be able to grow vigorously because consumers are out of jobs and laden with debt. As they save more and spend less, companies worldwide are expected to have trouble growing profits. Gross said he thinks the stock market's returns might be about 6 percent annually for an extended period.
Against the uncertainty and higher stock prices left in the aftermath of the powerful rally, some fund managers said they feel more comfortable buying corporate bonds now than stocks.
That's unusual behavior for stock-pickers.
Fairholme fund manager Bruce Berkowitz said he's never seen bonds so cheap. He likes earning double-digit yields while having some protection in the case of bankruptcy. Stocks generally are worthless if a company goes bankrupt, and that's an important consideration now because the bankruptcy rate is expected to soar amid financial troubles. In a bankruptcy, bondholders lose money but usually end up with something, even if it's pennies on the dollar.
Berkowitz is buying stocks too.
For example, he has made a major investment in Pfizer, allocating a large chunk of his fund to the pharmaceutical stock. He has done it because he is especially focusing in this tough economic environment on companies with sizable cash positions or free cash flow.
But in a sign of the times, and a lack of agreement among professionals, Berkowitz's peers at the conference saw Pfizer as a controversial stock pick. Health care is one of the few sectors that did not soar in the rally, creating possible opportunities for investors attentive to stock prices.
But Rajeev Bhaman, manager of Oppenheimer Global, questions whether pharmaceutical stocks will turn out to be a value. He argues that health care stocks were not carried away by the rally because of the threat that Congress will adopt health care changes that will stifle profits. In addition, he faults pharmaceutical companies for sitting on cash rather than investing aggressively in the research and development that can lead to new products.
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Gail Marks Jarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement without Living Like a Pauper or Winning the Lottery." Comment by clicking here.
Previously:
05/12/09: On Wall Street, signs plant a seed of hope
04/08/09: Analysts debate the future of the rally
03/19/09: Gold unlikely to pan out as cure-all
02/29/09: Housing credit could provide sizable boost
02/19/09: Rebalancing being put in different light
02/04/09: Diversification doesn't always offer insulation
01/27/09: Taking steps can help regain some control
01/20/09: How to save for college during a recession
01/12/09: Bonds still risky option to stocks
12/24/08: Some predict mid-2009 for return to investing joy
12/09/08: A small dose of short funds may be useful
11/11/08: Mutual funds can get caught in downward spiral
10/27/08: Investors can bounce back from even the worst of times
10/20/08: Want to sell? Look at 401(k), but don't leap
10/16/08: Want to be like Buffett? There are ways
09/29/08: Money protection only goes so far, so know the risks
08/26/08: Retail stocks may not be best fit for investors
08/20/08: Rear-view mirror investing can be dangerous to a portfolio
07/01/08: What do we do? My daughter didn't get a scholarship
02/25/08: Before abandoning your mutual fund
02/14/08: Dirty little secret of some funds may be haunting
01/29/08: Sorting out the stock market
01/03/08: One word for 2008 crystal-ball gazers: Caution
12/11/07: ‘Buy and hold’ isn't necessarily tried and true
11/26/07: Translating the falling dollar's implications for investors
11/13/07: Gradual retirement may not be key to happiness
11/05/07: Rate cut won't offer immunity to investors
10/29/07: Employers set to help workers save in 401(k) accounts
10/22/07: Playing bounce may be costly to stock investors
10/10/07: Investors find boring often can be fruitful
10/01/07: Make up lost time with swift, smart action
09/24/07: Balance is key for investing by retirees
09/18/07: Homeowners who wait see options fade
09/04/07: Easy matter to rate fund's performance
08/27/07: Mortgage mess could be good for savers
08/17/07: Small stocks are coming with large caveats
© 2007, Chicago Tribune Distributed by McClatchy-Tribune Information Services
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