Welcome, Guest | Register or Login
Jim on Facebook Jim on Twitter Jim's YouTube Channel Jim on Google+

Important Stuff


Stuff Jim Reads

Call it the new “Paranormal” market–you’ll need some new investing tools but the profits are out there

posted on March 2, 2012 at 8:30 am
Print This Post

Can we just go back to the good old days? The days when stocks went up every year? When we all talked “buy and hold?” When a 200-point drop in a day in the Dow Jones Industrial Average was unusual? When the challenge of investing in stocks was finding good, well-managed companies rather than predicting the direction of the dollar or when Greece would default?

Not a chance.

We have, in fact, entered a new era. It’s not the “New Normal” forecast in 2010 and it’s actually even more dangerous than the new “Paranormal” sketched this January by Bill Gross of PIMCO. This era is characterized by extreme swings between radically opposed fears and hopes. We’d better get used to it. Remember 2011? The year before the current rally? That’s the new era in a nutshell, I’m afraid.

And we’d better come up with strategies for investing through this period. The current reality is, after all, the only one we’ve got. I’m going to start this post by depressing all of us with the size of the challenge ahead. And then I’m going to give you five ways to change your investing ways that can, I hope, make this era less painful and more profitable.

Remember the “New Normal?” It was the phrase bond-fund legend Bill Gross and PIMCO CEO Mohamed El-Erian coined back in 2010 to describe the financial world after the 2008 global financial crisis. Everyone would deleverage to get rid of debt. Consumers would go frugal. Banks could forget profits since borrowing would go way down. Houses would lose value—and renting would become the new normal instead of buying. Oh, and investors could forget about anything much better than a few percentage points of yield on their bonds and sluggish growth in stock prices. A 5% annual gain would seem like nirvana.

I found that downright depressing—not least because it wasn’t obviously wrong.

This January Gross replaced the “New Normal” with what he called the “Paranormal.” Gross begins with the observation that rather than deleveraging as described in the “New Normal” paradigm, most economies have not reduced debt (U.S. and EuroZone consumers are global exceptions) but instead have piled it on. The world’s central banks are adding debt to their balance sheets—2.74 trillion euros at the European Central Bank alone after the most recent round of bank loans–so they can lend to banks that would otherwise be broke who can then buy bonds from governments that would otherwise be broke. This has worked to the extent that the global economy has continued to expand instead of experiencing a continued recession as everybody cut debt.

The “Paranormal” economy is obviously more dangerous for investors than the “New Normal” because it has replaced the one danger of the “New Normal” with two potentially painful outcomes. There’s still the previous “New Normal” risk of deleveraging and recession, but there’s now the opposite risk that economic growth, based on global monetary stimulus, will result in runaway inflation and finally global financial implosion. (To read Gross’s January letter on the “Paranormal” economy follow this link http://www.pimco.com/EN/Insights/Pages/Towards-the-Paranormal-Jan-2012.aspx )

And, yes, as much of a downer as the “New Normal” was, as an investor I find the prospect of the “Paranormal” even more depressing.

Gross’s second risk—that of runaway inflation and global financial implosion—is scarier than a “New Normal.” Recession isn’t nearly as scary as implosion and the meager positive returns of the “New Normal,” while meager were still positive. I don’t think I’d make any money during an implosion.

But the possibility of vacillation between the two extremes of the “Paranormal” paradigm makes it more dangerous than even the worst one of those extremes alone. The existence of two radically different alternative outcomes—with a decision between them put off into some unspecified future—will create a financial market where a wild swing toward fear of recession is followed by a swing to fear of inflation/implosion is followed by a swing back to a fear of recession. And so on. With the possibility that investors can lose big money on each swing toward one extreme or the other. A steady average of 3% returns in the “New Normal” would be bad enough for anybody trying to reach a financial goal, but it sure beats getting beat up over and over again.

What if 2011, with its wild swings between what we spent the year calling risk on and risk off, is the normal “Paranormal” that we can look forward to until… Well, until the world has worked off its huge imbalances of debt and cash.

I don’t know about you, but I didn’t find 2011 much fun as an investor. Trying to navigate through all those market swings was a lot of work and I don’t have much to show for it. I’m in the process of finishing my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ calculations for 2011—I’m double-checking the data now and I should have it posted a day or two (maybe less) after this column goes up. It looks like my returns are lower than but within hailing distance of the 2.1% return on the Standard & Poor’s 500 index. But I’ve never been through a year where I did as much selling and buying and selling and buying just to hold my own. I finished the year with 40% in cash as I played intense defense. I haven’t run a cash position like that since I started this portfolio.

If 2011 is a typical year for the new era, I think investors need to work hard at developing strategies to cope with more years like this. Otherwise, my fear is that the character of this market will force us into patterns that aren’t particularly profitable—even if they are, on some level, reasonable reactions to the pain and uncertainties of that “Paranormal” economy and market.

I don’t think I need to run through all the reasons for thinking that there’s a danger of a global financial implosion (for example, see my February 13 post http://jubakpicks.com/2012/02/13/when-is-a-bad-loan-not-a-bad-loan-when-chinas-government-says-it-isnt/ ) or for thinking that there’s a danger of a global recession from what EuroZone leaders so glibly call austerity, especially if the United States adopts draconian deficit reduction economics in 2013.

Or even to spend much time reminding you that the key characteristic of the “Paranormal” market is its tendency to swing rapidly and radically from high to low and back again on macro-event hopes and fears.

In 2011 that tendency was so pronounced that John Murphy at StockCharts.com dubbed this the “Tarzan” market for the frequency of its wild swings.

Here’s a brief run down of the bigger moves in the S&P 500 for the year:

December 30, 2010 to February 17, 2011—up 6.5%

March 11 to April 29 (the high for the year)—up 4.6%

April 29 to June 15—down 7.3%

June 15 to July 6—up 5.8%

July 6 to August 10—down 16.3%

August 10 to August 15—up 7.4%

August 15 to August 19—down 7.1%

August 19 to August 30—up 7.9%

August 30 to October 3 (the low for the year)—down 9.4%

October 3 to October 26—up 22.1%

October 26 to November 25—down 6.8%

November 25 to February 29 (the current rally)—up 17.8%.

Looking back, August is my favorite month with three moves of 7% or better between August 10 and August 30.

The total net result of all this volatility, remember, was a return of 2.1% on the S&P 500 in 2011.

What do you as an investor do with a market like that? That’s an especially important question if you believe, as I do, that 2011 isn’t an aberration but a typical year in Gross’s “Paranormal.”

Ideally, you’d like to turn that kind of volatility from an enemy to a friend. After investing through 2011, I know that’s much easier said than done but here are five suggestions gleaned from the pain of 2011. (As I’ve said repeatedly over the years, if you’re going to pay the tuition, you’d better learn the lesson.)

  1. If the net return on the “Paranormal” market is 2% to 5% annually, then any time a swing down presents a 5% yield in a dividend paying stock (that otherwise meets your fundamental tests for quality), jump on it. For example, on August 24, sort of half way between the August 19 swing down to 1124 on the S&P 500 and the August 30 swing up to 1213, Magellan Midstream Partners (MMP)—a member of my Dividend Income Portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ –fell to $54.78. At that price the master limited partnership (MLP) units paid a 12-month trailing yield of 5.6%. It turns out that the “Paranormal” market was headed up from there—although with a detour at 1099 on the S&P 500 on October 3. On February 29, Magellan Midstream Partners closed at $73.17 and the yield had dropped with the share price increase to 4.34% (even with an increase in cash payouts in the third and fourth quarters that had sent the total trailing 12-month payout to $3.26 from $3.05 in August.)
  2. Use buy and sell target prices to make volatility your friend. In effect buying when you see a yield above 5% is a strategy for making downside volatility work for you. You can do the same thing for stocks that don’t pay a dividend (or where the dividend isn’t high enough to make it the primary reason to own a stock.) I bought Freeport McMoRan Copper & Gold (FCX) in my Jubak’s Picks 12-18 month portfolio http://jubakpicks.com/the-jubak-picks/ at $57.63 on December 14, 2010. The stock hasn’t seen $57.63 since. In fact the highest it’s been is $54 and change on April 6 and again on July 18. After watching the stock for a year, I’ve got a buying and selling pattern in mind. When the stock gets down below $40-$42 I’m willing to buy more. The stock has hit lows well below $40 on October 3 ($29.47), November 25 ($34.17), and December 16 ($36.76). At the current price of $42.56, if you’d done buying near those dates you’d still be underwater to my original purchase price of $57.63, but you’d have a substantial number of shares purchased near $40 that were actually in the money even at $42.56. I’d look to sell some shares (at least) if the stock got back close to the $54 it hit in earlier highs. Even at $50 I’d have a 25% profit on some of my shares.
  3. Buy, sell, and buy and sell again. Even in long-term positions. Sure, I want to own Freeport McMoRan for the long-term. The stock is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ because global demand for copper will climb with rising living standards in the developing world. But if the “Paranormal” market is going to give me volatility, then I’m going to use that volatility to trade in and out and try to lower my basis cost in my long-term buy-and-holdish positions over time. One of the advantages of owning a stock for a long time is that you get to know its price patterns and to understand how it reacts to macro events. Use what you know.
  4. Find a few stocks, sectors, or markets that are anti-correlated (or at least uncorrelated) with the main market. For example, Japanese stocks have been seriously out of sync with the global markets throughout the euro debt crisis. That’s because when the euro is in trouble and the market is in risk off mode selling down everything from Sao Paulo to Shanghai, investors are moving money into the yen and yen denominated investments for safety. If you compare the charts of the iShares MSCI Japan Index ETF (EWJ) and the iShares MSCI Brazil Index (EWZ) for October 2011, for example, you’ll see that at a point where Brazilian stocks are sinking to a 20% loss, Japanese stocks are holding rock steady. You can do even better finding assets that zig when others zag with individual stocks. Chart Japan’s Sanrio (8136.JP) against iShares Brazil, for example. You’ll notice that the maker of Hello Kitty killed from March through November, only beginning to falter when the current rally started in that month. Since then, you would have done much better in the Brazilian ETF than in the Japanese equity. You don’t need to find a lot of pairs like this—and in an age of ETFs you don’t need to be able to trade in overseas markets to do it either—but you should have a few possibilities in you toolbox so that your portfolio doesn’t have to track the overall market volatility when you don’t want it to.
  5. As my example of Sanrio is meant to suggest, in the “Paranormal” market, think of yourself as Dana Scully or Fox Mulder. You’ve got to be willing to go the extra mile (at night with the Smoking Man lurking in the shadows) to find the tools (otherwise known as stocks) that you need. The profit is out there. For example, in a world where the credit ratings of the United States and France are under pressure, what about the stock markets of countries with improving credit ratings such as Chile, Colombia, and Indonesia?  Worried about the euro and the dollar? What about putting money into the Norwegian krone with Norway’s Statoil (STO) or SeaDrill (SDRL) with their 7.4% and 4.0% dividend yields, respectively, that will climb if the krone appreciates against those other currencies? If substantial real (that is after subtracting inflation) returns are unlikely in the “Paranormal” market, as Gross suggests, then you’ve got to take advantage of differences in inflation rates, currency strengths, credit risk, and anything else you can figure out.

A final word on the role of my Jubak’s Picks portfolios in all this. In this column I’m advocating some strategies that I can’t execute in these portfolios. (Although I can and do in my mutual fund Jubak Global Equity http://jubakfund.com/ .)These portfolios are binary buy and sell portfolios, for example, so I can’t sell partial positions or lower my basis cost by adding more shares when a pick gets cheaper. I either get the entry and exit points right or I don’t. You can execute more flexible strategies as I’ve listed here. My suggestion now is, as it always has been, to use my picks as tools and suggestions for building your own portfolios.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Freeport McMoRan Copper and Gold, Sanrio, and Statoil as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Related Posts

No related posts.


  • kykerkent on 2 March 2012

    Jim. Great Advice. I have been using stochastics to trade your picks for probably the last 12 months or so with great success. Fundamentally, these are great companies, but the volatility can’t be ignored. It’s like riding a boat through rough seas. Sure i’m getting a little sea sick from the volatility, but at least I have the assurance that im backed by a good sturdy ship. We’ll all get to our destination in the end!

  • organicbob on 2 March 2012

    It surprises me that you (Jim) do not advocate using options to lower your stock cost and take advantage of volatility. Yes, there are still some stocks out there with high vols. But I guess that is not an area of expertise you have delved into.

  • saludovencedorus on 3 March 2012

    There’s a name for this well-established trading approach. It’s called “swing trading” (like Tarzan). And while it can result in positive returns it relys on changes in price being technically signaled. For much of 2011, price action was headline driven, leaving the technicians muttering to themselves. The hope is headline risk abates going forward, leaving a little more coherence to the oscillations than we saw last year.

  • Gorm on 3 March 2012

    This isn’t investing. It is speculating at best, but gambling in reality. It is riding the waves, not based on fundamentals but buying / selling trends on reflector stocks.

    As governments (fiscal and monetary policy) increasingly gamble by piling on more debt (with NO real hope of remedying the DEBT problem- just buying time- postponing reality), the big automated brokerage / hedge plays will get bigger and more speculative, and eventually each will overreact, inciting a panic.

    How is this ever going to end well? As Newt would say, looks alot like managing decay!!

    If the ultimate cost is economic collapse, we’d be better off investing in land and survival skills.

  • semievolved on 3 March 2012

    I appreciate JJ’s posting this. It must be hard for him to live within the parameters of his buy/hold strategy when he clearly recognizes the pitfalls in today’s investing climate. I haven’t found a reliable combo of technical indicators to guide trades but many stocks have developed reliable channels this year (FCX for one) and those have been very helpful. Although it’s not an option for JJ, I find that a few well chosen mutual funds really stabilize my accounts and provide secure, reliable returns. A couple of note are: ginnie maes: PGNDX and FGMNX, multi-sector bond:PONDX, FSICX, and short-term bond THOPX. Nothing sexy about them but they seem to perform very well with minimal oversight on my part and I appreciate that. Couple these with smaller stock trades and you give an overall stable and low-risk account a reasonable shot at respectable growth.

  • Yclept on 3 March 2012

    I’ve begun to lower my liquidity requirements and look hard at (sometimes buying) stocks that I formerly avoided due to difficulty getting in and out. I think much of the volatility in the open markets is due to massive and increasing machine trading in dark pools. I think the arbitrage potential is set up there and every now and then (like thousands of times a second) some machine dives into the open markets to exploit it for what seems like no good reason to those of us who can only see the froth on top of the open markets.
    At least by moving more of my attention to smaller, less liquid stocks, I am operating in a machine-free environment as the low liquidity prohibits them from taking the large positions from which their algorithms are designed to scalp tenths of a percent. Tenths whose very volume leads to massive overreactions to be further exploited by the machines. At least in smaller stocks I’m much more likely to be competing against other human beings working in human time frames.
    With low-liquidity stocks, I’m forced to rely more on limit orders (and yes, I know the whole world can see them — if they catch, fine; if not, fine) and patience while practicing the range-bound extremes mentioned in the article. It requires a different type of patience than the old-fashioned buy-and-hope disciplines that were relevant in the past.
    I end up having larger cash positions than I did in the past, but that doesn’t feel all that bad despite the paltry returns I’m getting on cash. At least my investments are primarily allocated in positions I believe have good potential for gain and the rest of the money is out of harm’s way, awaiting its chance on some limit order for another decent candidate.
    I should mention that most of this is in a Roth IRA, so margin is not a consideration. Though I seldom actually use margin in any of the cash accounts either.
    Even in the Roth I sometimes buy option-able larger stocks with the intent of writing covered calls for part of the return.
    The old saying “to a man with a hammer, everything looks like a nail” is as true as ever. I find I need a more diversified investment toolbox than I did in earlier times. It does no good to pray for the return of the late nineties!

  • USDAportfolio on 3 March 2012

    Jim, I’m surprised at you.

    This year, you fell into the age-old trap for most individual investors: reacting to short-term news to buy high and sell low, and underperforming the market. I understand that you need to be an active investor to keep your blog interesting, so you are driven by your profession to invest more actively.

    Unfortunately, your lessons are the exact opposite of what you should have concluded, and I don’t think they constitute safe advice for the individual investor. On the contrary, I think the advice you recommend will be mis-used by individual investors, and their results will suffer.

    Many who traded the market in 2011 made money. But I know many people, yourself included, Mr. Jubak, who underperformed the market itself by trading.

    Instead of reacting to short term news, investors should instead stick to your own advice in The Jubak Picks of looking for the long-term trends, doing a fair-value analysis, and scooping up stocks when they are undervalued. They should also heed my advice of looking for solid dividend payers. No, that does not mean buy-and-hold. But what it means is that short term news can lead emotions to overpower logic.

    And that is exactly what happened to your portfolio in 2011. So, if any lesson is learned, it’s this: keep your cool. The world is not collapsing. When everybody else is panicking, that is the time to buy.

  • Jim Jubak on 5 March 2012

    organicbob, I’ve got nothing against options and I think you’re right when you say they’re a great tool for a market like this. I just don’t feel that I know enough about options to give good advice.

  • aktanf on 5 March 2012


    I have to admit that I agree with USDAportfolio’s comments. In hindsight, what you are recommending might have worked better than simply holding onto S&P500 index fund in 2011, but in the end, holding onto the index fund was not to bad after all. Where is the conviction and wisdom in “investing” in your article? Especially for those who do not need the money in the stock market in the next ten years? Would this work in all of the next 10 years? I doubt it.

  • USDAportfolio on 6 March 2012

    I suppose I wasn’t specific enough. I think Jim’s advice about buying dividend stocks with good yields is sound advice — provided those stocks are trading at a discount to fair value.

    That is my advice that I have recommended time and time again here: perform a fair value analysis. However, I know very few individual investors who do that. I know many more who trade based upon price history.

    There is nothing wrong with buying and selling. My point is that if you have no reference by which to judge whether or not you are buying something undervalued and selling something overvalued, then you are just speculating. Pure and simple. It is the same as people who bought and sold houses without any knowledge of the underlying value of house they were buying.

    If you are not willing to do the fair value analysis, then you probably should not be buying stocks, unless you have money to blow and don’t have any local casinos.

    Finally, those who think the last 10 years are proof that “everything has changed” are simply letting a history of bad results influence their thinking. It is not clear logic, it is emotion. The reason the results were bad is BECAUSE people had been buying things without calculating their fair value. Internet stocks in 1999, houses in 2006, … (and treasury bonds now, by the way).

    I also read Bill Gross’ article. I like to get a wide variety of opinions. Mr. Gross depends on the fear trade, and needs the irrational flocking into bonds to continue to maintain his livelihood. He may even believe his own article, and he is entitled to his opinion.

    But my thinking is: the market as a whole may continue to go sideways. Or it may go up in a 10-20 year bull. It could go down (in the short term anyway), but I doubt it would go far.

    But in any of these scenarios, individual companies will continue to flourish, as they always have. We will always have an Apple, or a Microsoft, or a McDonalds, or an Exxon. If you understand cause-and-effect, and pay attention to the trends in the world, it is not too difficult to find companies that will do well over a 5-to-10 year period of time. And if you are an investor, not a gambler, you invest for a 5-10 year period. That doesn’t mean buy-and-hold. That means buy-and-continually-monitor the trends.

    As Jim mentions in his The Jubak Picks (which is great book, by the way), the trick is to wait until short term fear makes schitzophrenic Mr. Market offer the good company at a significant discount to fair value, and to pick up shares. The market always goes to extremes in both directions, often further than you think. Eventually the company will be trading significantly above fair value. Don’t be too greedy… pick a price and take your profits.

    If you wish to invest your money (not gamble), and are not willing to do a fair value calculation, then your only rational choice is to use dollar-cost-averaging. This method gets statistics on your side to help you win… but it is a long-run method.

    History shows that good companies can flourish even when things are pretty bad.

    If you are a good investor, you can find those good companies and buy them, instead of cowering in fear. Your edge is the ability to find good companies and understand when prices are cheap.

    Here’s an example: why on earth did Tessco get so low last June? I could not understand it. (My only thought was fear that AT&T’s prospective buyout of T-Mobile would reduce expenditures to improve its wireless network.) TESS is a great play on the wireless internet and a chief supplier to a major wireless carrier that is widely expected to need to make network improvements. Its history of cash flow, strong dividend, and its position to profit from AT&T building its network made it seem to me like a slam dunk.

    At the time I was looking at FFIV and TESS. But, based on my calculations, TESS was the better pick in June 2011. So I bought. And, true to the numbers, TESS has outperformed FFIV since then. Now, long-term, FFIV may still outperform… but at the time I bought according to my rules… i.e, clear discount to fair value, and nice dividend to boot. And it worked.

    People who were cowering in fear because of Europe missed out on 70% gains in TESS and 50% gains in FFIV. Was the mobile internet trend going to disappear because the Greeks would default? Not a chance. By the way, those same people gripped by fear may have made 10% on the short side, and another 10% on the long side — IF they were lucky and timed everything perfectly. But the average investor? Not a chance. But someone who did all that active trading does a lot of work, needs to check all the time to determine when to end their trades, and generates a lot of trading fees for their broker. And taxes on short term gains. If they are lucky. It is much easier (and cost effective) just to be patient and pull the trigger when the price is right.

    A good investor ignores the short term news, and instead wakes up and smells the aroma of freshly brewed cashflow selling at a discount to fair value.

    Yes… some traders… only the best ones, can make money by trading in a market like that of 2011. I’m sure some of the blog readers here were successful doing just that. But the readers who were successful are a rare breed… they are good at what they do, and they know it, and they cannot be easily copied.

    In fact, I’d say it is much easier to run a couple calculations and wait, then to run around like a chicken without a head.

    Finally, I come here because I want to hear good ideas about good companies. Let’s get back to talking about them!

  • Jim Jubak on 6 March 2012

    USDA, I appreciate your long posts laying out your thinking and your criticism of my approach now. Part of the question I’m raising is how do you go about calculating fair value? All the fair value systems that I know of are based on some assumption–cost of capital, interest rates, earnings growth to price–that are based on history and a belief that the future will in fundamental ways resemble the past. We are at the end of a huge secular bull market driven by the decline in interest rates from double digit levels in the early 1980s. I’m old enough to remember buying Treasury zero coupon bonds paying 14% back then. I think it’s fair to say that going forward we’re not looking at a 12 percentage point drop in long Treasury rates from here since 10-year Treasuries now pay 2%. Gross’s point in the New Normal was that we can/should expect much lower rates of return. Mine is that we should expect lower rates of return and more volatility not just in 2011 but going forward for a while. It seems to me that it’s worth thinking about how to best cope with that environment. I did essentially the fundamental exercise you talk about prior to recommending FFIV on 9/28/11 and then prior to selling on 1/20/12–but I also added an overlay from my macro view of markets and global economies. So far FFIV is flat with my sell price. Can I ask what your analysis tells you to do with the stock now?

  • USDAportfolio on 7 March 2012


    Now you’re talking. How to modify our fair value calculations — that is useful. I would be interested to hear more about what you think appropriate bounds would be for our inputs and assumptions, because — I have to admit — it’s difficult work and I’m not that good at it. This would be a great topic for a post… note that if this was the intent of your post above, then it was lost on me, and probably most readers as well.

    My main thought was predicated upon your statement: “I’ve never been through a year where I did as much selling and buying and selling and buying just to hold my own. I finished the year with 40% in cash as I played intense defense. I haven’t run a cash position like that since I started this portfolio.” You went on to state that you underperformed the S&P500. This is atypical for you… typically you have a cool head and outperform the market. Furthermore, all of my research says that people who trade too much, trying to time the market, often underperform the market. Your own statement seems to back up this research.

    Your third conclusion (Buy, sell, and buy and sell again. Even in long-term positions.) seems to be the exact opposite of what the evidence would say. If you had a bad year, and you did a lot of buying and selling, one would think the buying and selling might have been a factor. When the evidence shows that, this year at least, simply sitting in the index would have been better than trying to time the market.

    You didn’t specifically define how you recommended choosing the price targets. My fear is that most readers will simply think that means looking at a chart, and using some conjured-up method (from nowhere) to determine what is a good price. In other words, they could blindly buy even when overvalued — which I think is never a good idea. History shows that people tend to buy overvalued things because most people will not bother with a fair value calculation — witness tech stock bubble and housing bubble.

    Thus, it is reassuring to hear you state that you DO endorse a fair value calculation. You are just suggesting tweaking some of the typical inputs to go outside what is normally considered a reasonable assumption.

    I think that’s fair, and I thank you for clearing that up. Note that I have been a loyal reader for 7 years — I like you, Jim. When I first read your post, I thought you were saying you were going to abandon your previous methods, and use 2011 as the standard going forward.

    Finally, I do think that the change in media may have added pressure to make your portfolio management decisions more short-term. In the MSN format, your posts were spaced-out enough that you didn’t have to buy and sell all the time.

    Now, if you don’t do a transaction relatively frequently, your readers may be looking at a recomendation of yours that is months old — and no longer valid. So, to stay current with your readers, I think the pressure is for you to do more trades.

    I wonder if there’s a way where you could manage your portfolio as you would want to, in a perfect world, while still giving the readers relevant and timely info that they could use to make decisions, even if not in synch with your recommendations?

    Also, the single best thing about your site is you help me to find good companies with good stories, and I can investigate them for myself. As long as you continue to surface names that I might not have found by myself, or give good background stories for companies I don’t know about, and illustrate long-term trends — I will continue to be a loyal reader.

    I’m sorry my prior posts were not worded as well as I would have liked. Thanks again for all you do.

  • USDAportfolio on 7 March 2012

    Oh, by the way. My own analysis says to sell FFIV, and I agreed with your decision to do so. In fact, I wouldn’t touch it unless it falls into the lower $70s again. Maybe that’s overly conservative? What do you think?

  • USDAportfolio on 7 March 2012

    One of the best articles you’ve written was in Feb 2008, entitled “How to Bottom Fish for Stocks”. As far as I can tell, they have removed that article from MSN.

    In that article, you helped the reader to learn how to calculate fair-value on their own, and judge whether or not a stock was undervalued / overvalued.

    This set you apart from most authors, who want you to be hooked on their recommendations. I believe what sets you apart from other investing gurus is that you like to teach. That article was an example of it.

    If you were to consider posting a 2012 update to that article, such as what you discussed above, I think that would be one of the most helpful things you could do as an investing mentor. And it would no doubt generate a lot of comments.

    Thanks for thinking about it, Jim.

  • Bryan on 7 March 2012


    I would love to see some type of explanation/teaching as to how you evaluate companies as well. I too like to use your articles for finding companies I normally would not have and to also get more info on ones I do know. Your posts the way they are have made me a better evaluator of the companies I look to invest in, but how to better determine the fair value is something I know would be very helpful to me and would likely be helpful to other readers. There are many people who read your posts that are willing to put in the work to evaluate a company properly. Personally I wish I not only knew the what the best tools were for the job, but also how to best use those tools.

    I too appreciate the work you put into your posts. It makes each of them worth reading. I also understand if what USDAportfolio has proposed is something you don’t want to do, but like he/she said thank you for taking the time to think about it.

Post a comment

You need to login in order to post a comment.

Comments that include profanity, or personal attacks, or antisocial behavior such as "spamming" or "trolling," or other inappropriate comments or material will be removed from the site. We will take steps to block users who violate any of our terms of use. You are fully responsible for the content that you post.

Jubak in your Inbox

Get Email Alerts

Sign up now and download Jim's latest Special Report

Get the RSS feed

Quick Quote

Quotes provided by Yahoo! Finance and are delayed up to 20 minutes.