Tuesday, January 02, 2007

The Dressing, The Dog and The Herd

The end of year provided for some very entertaining reading and tube watching. There were articles galore about end of year portfolio strategies – from tax loss selling to window dressing of portfolios by professional money managers. Among the stocks potentially being dumped, according to a December 26th Wall Street Journal article would be Corning (NYSE: GLW) which we have talked about before and is a holding in our Model Portfolio.

Then there was the Wall Street Journal article on December 2nd talking about the oh-so invincible hedge funds who felt they should catch up by unwinding bearish positions and joining the rally. Who says the markets are efficient?!

On another day in December, CNBC had a special on the Dogs of the Dow strategy. That’s the strategy which dictates you buy the 10 worst performing Dow stocks for the upcoming year. Unfortunately for the Dog people, as laid out in another December 26th WSJ article, real losers may be hard to find. Only 4 of the bottom ten actually finished below their 2005 levels. Intel (Nasdaq: INTC), one of our favorite picks and a Model Portfolio holding to which we added to recently, got the honor as THE worst performer of the Dow with a 19.55% decline.

Amid all of this, I wonder what Mr. Jon Brorson has been up to lately? Mr. Brorson was profiled in a rather amusing article in the WSJ on September 29th as the Dow was mounting a fierce rally from a July low of about 10,700 to 11,700. He has $2.3 billion under management and apparently has a knack for timing market turns. Oh boy. That’s a recipe for stress if I have ever seen one. The article notes Mr. Brorson’s day begins at 4:50 am and ends by going to bed by 9 pm – “I am wiped out when I get home each day,” proclaims Mr. Brorson. No wonder. Checking the leading sectors every hour and eyeing stock charts by drawing horizontal lines across the peaks and valleys can do that to you. Hopefully he didn’t cut back too much on that Phelps Dodge (NYSE: PD) position which ended the year 40% higher from its September levels after becoming a taekover target. Unfortunately, Mr. Brorson appears too worried about the herd and “knows that if the market keeps defying his expectations, he will at some point be forced to start buying the winners, or risk falling behind.”

I say hold the dressing, love THE dog and ignore the herd.

All the best for 07.

1 comment:

Marissa said...

You write very well.