At England’s Wimbledon Stadium, two lines from Kipling’s “If” appear above the doors leading from the dressing rooms to the famous Centre Court. They read, “If you can meet with Triumph and Disaster, and Treat those two imposters just the same.” There is an inspiring short video on YouTube of the poem read by the great players Roger Federer and Rafael Nadal. In the less competitive world of investing, players would do well to keep this lesson in mind.
Unfortunately, many do the opposite, equating news of a downturn in the stock market with a disaster and selling, then buying after a rally for fear of being left out. Mutual funds suffer the burden of being a popular choice with these investors, who react rather than anticipate. In April of this year, buyers put over $6 billion into U.S. stock funds as the market hit its highest point of the year. May then brought the steepest dip since February of 2009 and “investors” afterwards reacted by taking $15 billion out of these same funds.
That was the biggest withdrawal since March 2009, when the averages hit a 12-year low before beginning an advance of more than 50% over the next 12 months. Most investors could improve their returns by bearing the Kipling poem in mind and heading the opposite direction from the emotion-driven herd.
That is not easy but one big step is creating a center core on one’s capital, whether it be measured in only a few dollars or millions, to be kept in relatively low risk but long-range return investments. This should hopefully be something more than the almost insultingly low returns from money market or other demand deposit accounts, perhaps a closed end bond fund like Credit Suisse Income (CIK-$3), paying over 9% in monthly dividends from higher yield corporate bonds.
Like most worthwhile investments, its value will fluctuate but the goal of investing is to produce satisfactory returns over time, not to avoid fluctuations. Most investors exaggerate the value of predictable results, as if they were corporate treasurers required to produce a fixed sum at some future specified date. I suspect this reflects some inner desire for control, which should probably be addressed by competent therapists, rather than through mediocre returns in fixed rate investments in the current low rate environment.
Apple (AAPL-$270) has certainly not been a mediocre investment. In February, when it was $200, I recommended it again, mentioning a $300 price target by 2014. It now looks as if it will reach $300 before 2011. One advantage of accepting that investment results need not be controllable is that they have the power to exceed our expectations. Apple has sold over 3 million iPads in a couple of months and is rapidly expanding the profitable licensing of “apps” for it, just as it has for its iPhones. This is a market sector that didn’t even exist until recently.
Apple has a cash hoard of $42 billion, more than any other company in the S&P 500. It may someday use this cash to initiate dividends but investors who prefer cash now with their tech stocks can buy Intel (INTC-$21, 3% yield) or IBM (IBM-$130, 2% yield.).
In smaller companies, Internet facilitator Akami (AKAM-$45) continues to add clients and recently raised its 2010 forecast. My newest buy is Atheros Communications (ATHR-$31), another Silicon Valley company that provides technology that facilitates other advanced products. Its field is communications, particularly wireless and high-speed broadband. It also recently raised its 2010 forecast.
Continuing uncertainties over offshore drilling favor companies with solid onshore capabilities like Occidental (OXY-$84) and Concho (CXO-$57). Core Labs (CLB-$150 has unique strengths in maximizing existing fields.
The media exaggerate recent market dips; they are “imposters” rather than “disasters.” I suggest price targets 8-10% higher by year-end for all stocks listed here.