Monday, August 13, 2007

WallSt.Net Podcast

Welcome to everybody from WallSt.net who came over here because of the podcast interview with Dennis Olson (Haven't heard it? Go here; it'll be on their site on Wed. Aug. 15th). Thanks to Dennis and WallSt.net.

This posting is essentially related to some stuff I talked about on the podcast.

Firstly, anyone interested in buying my book can go here.

Secondly, in terms of some of the stuff I talked about in the podcast about why this blog is a bit different than many out there, I mentioned specifically, dividend investing, and long-tail investing. Here's a couple of articles I've posted that kind of give you a bit of the flavor of these topics, here, here and here. And for those who know me and my bent towards value investing, I re-submit this evidence ...

Now, in terms of stuff I specifically recommended (either avoiding, or moving towards) ...


AVOID


Real estate stocks, especially home-builders (see the reasons why, in an article I wrote in my other life) and avoid sub-prime lenders; the first for three to five years; the second for two plus years. Pessimism after that will be prevalent and then would be the time to buy. There's still too much optimism in the market.



BIG BANKS


Conversely, the really big banks are getting tarred with the "sub-prime" brush, which isn't warranted, in my view. Many of these institutions are tremendously strong, with great balance sheets and will easily weather this storm, and perhaps come out of it with better than ever opportunities. They're also paying great dividends right now, and most have raised their dividend recently. This is another sign that they are probably being mis-priced in the market. Some to look at would include:



Of course, those risk-takers might wait for the next mini-plunge which, if it occurs, might raise these yields by another 50 to 100 basis points (i.e. prices might fall by another 10-20%). However, I think they're good enough deals as they sit. Don't delay too long on these folks - "on sale" today!



EMERGING MARKETS
Emerging markets remain a very-long-term theme that investors will be able to successfully play for a decade at least (provided the stocks don't get overpriced). On a purchasing power parity (PPP) basis, these economies currently account for about 20-25% of world trade, yet most conventional financial advisers suggest a 5% weighting or so. This is a serious backward-looking mistake. No investor with a 20 year horizon can afford to take such a light weighting in these strong growth markets.


While the conventional BRIC countries have been bandied about as "the" emerging country investment destinations, other countries also have strong profiles too. A personal favourite of mine remains South Korea, with nearly an "emerged" economy, yet very cheaply priced.

Here's some ways to play the emerging markets theme, via ETFs, in my personal order of preference:



  • Wisdom Tree's ETF - "DEM" - a dividend-weighted emerging market ETF. This ETF should prove more resilient than many emerging market investments during market corrections, while retaining most of the upside during exuberant bull markets.

  • The Claymore Investments ETF - "EEB", which is designed to provide exposure to the BRIC countries, through ADRs. Because ADR issuers tend to be large, liquid companies, this also reduces some risk.

  • The iShares S.Korea ETF, "EWY" - a narrow singly country focussed ETF.

  • The iShares Emerging Market ETF, "EEM" - a very broadly-based emerging market ETF.


AGRICULTURAL COMMODITIES

I think this sector is going to have a huge tailwind going forward, something I've written about here. In later postings, I'll elaborate on how to play this trend.



    Note: If you're on a blog aggregator, you can visit The Confused Capitalist here (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!


    INFRASTRUCTURE BUILD OUT

    This is tied in with several other trends, including the re-building of the industrialized world's infrastructure to make it greener (using mass transit for instance, to replace the crappy aging stock of roads and bridges).

    Also, the infrastructure build out in the emerging markets is something that's going to continue to occur during the next several decades. For instance, the Chinese GDP per head is about 1/4 of what it is in the US (on a PPP basis), while in India it's about 1/10 (PPP basis). These economies will also obviously be building out their infrastructure. Accordingly, I like some of the very large manufacturers, like General Electric ("GE") & Siemens AG ("SI"), but I especially like the engineering firms that'll obviously be beneficiaries of the design and over-sight work needed here. Some names in this sector include:



    Well, that's about all for right now - if you're new to the site, feel free to poke around. If you're a regular, thanks for coming by.




    JW

    The Confused Capitalist

    3 comments:

    DIP MASTER said...

    WOW! nice site and congrats!

    great RECOs :-)

    in this market remember to BUY ON THE DIP!

    -BOTD

    www.BuyOnTheDip.com

    ~continued success~

    stocksystm said...

    IMHO, the Financials are in the first couple of innings of this decline. To talk about looking to buy now is much too premature. In fact, I can't believe a man as smart as Buffett is doing serious buying of the banks here. Ben Stein talks about this perhaps being the buying opportunity of a lifetime and that Merrill Lynch is being given away. Please! He really sounds like a greenhorn on this. This is going to get much, much uglier. I would imagine the Financial Select Sector Spider (XLF) could drop by another 50% from here after many of these brokers and banks earnings simply evaporate. Many were similarly making the argument a couple of years ago the homebuilders were cheap due to their low PEs. Buying stocks in cyclical industries when earnings are peaking or have recently peaked is a very bad idea.

    Jay Walker said...

    StockSystem ...

    Don't paint the swath too wide - I'm suggesting only a few of the really large banks - NOT the brokerages, NOT a bunch of the small financials, NOT sub-prime lenders etc. Quality lenders with a long history.

    These are quality businesses, and the fear factor is too high - they aren't exposed to the subprime mess and I think the future will show that these are great buying points, for these few select suggestions.

    Yields of 5% plus for well-capitalized, long-lasting, quality businesses like these don't happen very often.

    I'd be stunned if the one I specifically mentioned dropped by 50% - and their earnings won't evaporate. Perhaps some of the others in this field, but not them. They'll be stronger businesses in five years from now.

    Jay