MARKET SENTIMENT - 2010/12/15
HALVORSON RESEARCH ASSOCIATES, LLC.Stocks are finally being touted by most managers as the place to be invested at this time. If you’ve been working with us, you’ve already experienced a great year of growth, as we’ve been between 80 to 100% invested in stocks throughout the year.
Our theoretical portfolios of 30 (Favorite) and 6 (Tiny) stocks, (Disclaimer: these portfolios are theoretical in nature, and do not include any trading costs, assume instantaneous changes made at the closing price, and do not include dividends or other management fees,) have done very well this year, last year, and have done twice as well as the S&P 500 Index on an annualized basis over the last 8 years, since the beginning of 2003.
after the drop of 2000-2002, stocks have managed to produce excellent returns on a managed basis, rather than investing in just a passive Index such as the Standard & Poor’s 500 Index. HRA is extremely happy that fundamental investing, or stock picking, has proven to be such a good strategy throughout the last few years, despite the drop in the stock market in 2008.
As we wait to see what 2011 brings, especially on the political and taxation side, we continue to see indications of growth in the U.S. economy, the latest being growth in the manufacturing sector and earnings growth overall. Real GDP for the U.S. increased 2.5% (latest estimate) during the third quarter, personal income increased 0.5% in October, and the International Trade Goods and Services deficit decreased to $38.7b in October from $44.6 billion in September 2010. While inflation appears to remain under control, we are seeing domestic production doing well, with growing demand worldwide with the soft U.S. dollar. We’re seeing increased exports of beef, which may overflow into other food-related industries in the near future.
WHAT DOES THIS MEAN FOR HRA?
We have been cautious about investing in energy to-date, and have made some money in precious metals this year. We will begin to be more cautious on commodities, as we see the world economy starting to stabilize and grow. We like the technology sector, some retail names, and the auto parts sector. We have stayed away from the financial sector, and will continue to do so until we see how the new regulations affect that industry.
HRA sees that we still have some turmoil in Congress concerning future taxes, and we may have to “take a break”, or expect a pause in price growth until the New Year begins. We do believe that a surge in the stock market is coming early in the year. Until then, we’ll just try to stay put, and if you aren’t already invested in the stock market, do so now!
Our HRA market sentiment factor, or OU-P, is showing a stock market that is 19% under-priced, and we are suggesting to investors that a 90-100% equity allocation for disposable assets (those not required for income) is the place to be if you are a long-term, aggressive investor. We believe that we can double our investment in 4 years by using under-priced growth stocks; bonds, CD’s and real estate can’t compare to that sort of potential return right now.
We believe that our stock-picking ability enhances our client returns over time, and that is why we’d like to tell each of you more about what we do and how we do it. HRA manages individual portfolios for each client, setting up a desired asset allocation and risk level, and managing with these things in mind. We flesh out our stock picks with timely investments in ETFs and Mutual Funds when our allocation calls for additional diversification or asset classes.
HRA notes that not all investments are suitable for all investors: consult your investment advisor before making any major changes to your investments, and don’t forget to update your goals and risk tolerance as things change in your life and in the overall markets.
Good Luck, and Happy Investing!
Halvorson Research Associates, LLC
Janet Raphael, CFA Bill Halvorson, FSA Erik Hughes
239-738-4212 e-mail: JCR@HRAstockpicks.com