I haven't posted in about a week as my Father (boss) and I have been traveling for business for most of the week. While I've been away from the website, the market has continued on its "random walk" as one day we are up 1% and the next day we are down 1.5%. I remain steadfast in the opinion that now is the time to increase your investments in U.S. stocks (or via mutual funds) as the economic data that has come out over the past month, including this week has shown a steadily improving economy.
As we all know (and as I've written here a thousand times), its all been about Europe. It doesn't matter if we have a day full of great corporate earnings, or a day where we have good economic numbers come out, if the headlines out of Europe are negative (which they always are), then the markets are going to be down. Ok lets face it, the European financial system is extremely shaky, and most likely "Europe" will fall into a recession in 2012 (a recession is where a country's economy starts to see consecutive negative numbers for at least 3 months). We also know that Greece and Italy are a complete mess, and as I've said before, Spain and Portugal are next (in fact earlier this week the markets were down over 1.5% on concerns that Spain was facing the same problems as Greece and Italy - which they are! Even with all of this, the European Union leaders are still divided on how to handle the current financial problems the EU countries are facing (kinda like our politicians in Washington).
My point? Look beyond the European mess. I fully recognize the current and potential risk in Europe, but I'm looking past that and positioning my stock/mutual fund portfolio in order to profit when the eventual European financial crisis lightens up (which I believe will happen when the European Union countries come together and compromise in order to tackle their problems). Ultimately this will happen..when? I don't know, but as is the case with investing, you have to be proactive instead of reactive to make money. You have to anticipate what is going to happen and position yourself (your investments) in order to catch the move up.
While I'm saying look past Europe, and start being more aggressive in investing your money in U.S. stocks/funds, don't rush in and just buy buy buy. Instead of doing that, when you see the markets trade down, start moving a fraction of your money into the investments that you believe will be the biggest winners over the next 3-6 months. For me and the other money managers I work with, we view the financial and consumer durable stocks (Citigroup/Suntrust Financial/Etrade/KKR Financial/Clorox/etc) as the best places to be positioned. With respect to mutual funds, I believe a good mix of U.S. funds would serve as a good mix. A suggested mutual fund portfolio might be:
15% U.S. Small Cap Fund (small cap stock funds are made up of "smaller companies" - hence the name)
30% U.S. Mid Cap Fund (mid cap funds are made up of "middle sized companies")
20% U.S. Large Cap Fund (fund cap funds are made up of large companies such as Microsoft/Clorox)
10% Asian/Japanese Fund (the Japanese economy is rapidly improving)
25% Cash (this is your "dry powder" where you can buy more of the funds you own if the market sells off)
But as I said, I wouldn't immediately start to move your fund portfolio towards those percentages/allocation, I would slowly move toward such. IF, there are positive developments out of Europe over the next week regarding the stability of the financial system (a BIG IF), then I would become much more aggressive in moving towards that portfoliio.
Going forward, I'm watching to see how the energy markets act (oil is up massively over the past 3 months - which you'll be seeing at the pumps over the next week, so fill up now!), as well to see how the retail season starts to shape up. Geographically, I'll of course be monitoring all the developments out of Europe, the tensions in the Middle East related to Iran and Israel, and how well Brazil's economy is doing (earlier this week, economic data out of Brazil showed impressive growth, and I'm really starting to warm up to investing in Latin America again).
As an update, I've been adding to my investment stakes in Citigroup (C), Suntrust Financial (STI) and Clorox (CLX). I'm looking to add to my positions in Etrade (ETFC),Yahoo (YHOO) and Chimera Investment (CIM). Some of the stocks I'm looking to get into are Bank of America (BAC), Atlas Oil and Gas (ATPG), Sallie Mae (SLM), Saks (SKS), Regal Cinemas (RGC) and General Electric (GE). For someone who has the stomach and a 6-9 month time horizon, I would aggressively be buying the banking stocks, as I believe they represent the most undervalued and attractive sector in the markets.
I'd like to send out a special hello to all the individuals in the lower state that we had the priveledge of meeting with this week. Thank you for the kindness that you showed us, and I look forward to working with you'all going forward!
