- Written by Marc Courtenay
- Sunday, 15 October 2006
You've got to love a guy who can pick great companies to invest in and writes articles like poetry. Chris Mayer, one of our top mentors, who writes the excellent investment newsletter "Capital and Crisis" (www.agorafinancial.com), did it again. To give you an idea how intuitive and talented he is, we want to share with you what he wrote for the weekend edition of the Daily Reckoning (www.dailyreckoning.com). It involves his current ideas and thinking about this "super" market that seems like it wants to do nothing but go up. Here at CheckTheMarkets.com we want to check the sanity and rationale of the markets too. That is why we pick the brains of saavy, brilliant investors and analysts like Chris. Here is some of his finest work:
market in The Zurich Axioms. Indeed it is. Especially when the market is
going up - but there's more to the story when you start to look at it a
As we make new highs on the Dow, people start to dream again. Early
retirement. Little house by the sea. Chilled wine in slender glasses and
warm sunshine in a bright blue sky. Nice cigar. Leisurely meals. No
As author Charles Bukowski observed: "It's easy to fall into this kind of
thinking when men hand you large bills at the cashier's window." The
market's been handing out lots of bills lately.
But let's look at it differently. Let's look at the market as we look at
the produce section. No one buys the produce section. You buy potatoes and
melons and onions - and not just any potato or melon or onion. You look
over each carefully before you put it in your basket. You consider the
price and the condition of the produce. So let's look at the market in the
way we look at melons and broccoli - with a discerning eye.
See, the big picture misses a lot of detail. People talk about "the stock
market" as if all the stocks danced to the same routine, like a line of
Rockettes. But that's not really true most of the time.
These people miss the better stories that lie beneath. There is a lot of
movement in varying directions. The market is more like a freeway, with
some cars turning off and new cars zipping on. Not everyone is going to
the same place.
There are trouble spots in today's market, sure - warning signs of a
slowdown in the highly cyclical semiconductor market, building inventories
among PC manufacturers and electronics retailers, vulnerable housing
related financial stocks and more.
And there are always broken restaurants and busted airlines lying around,
like shards of shattered dreams. Even as the market makes new highs, there
are pockets of horrible performance. Over the last seven weeks, coal
(-18%), maritime (-16%) and Canadian energy (-16%) have been among the
worst performing industries in the market.
The bright spots? Interestingly enough, they are names you probably
wouldn't guess off the top of your head. The best performing industry over
the last seven weeks was the shoe business (+15%), followed closely by the
tire and rubber group (+14%). We've made bets in both of these sectors in
K-Swiss (KSWS:nasdaq) and Bandag (BDG:nyse). I wrote a few weeks ago that
the bottom was in on Bandag after its strong earnings report in July. The
stock is up more than 30% since. Granted, we've had to wait awhile -- but
we've collected dividend checks as we've waited.
So you can see there are lots of crosscurrents even as the Dow makes new
highs. The fact that the Dow made a new high is the least useful part of
the story. It really doesn't tell you much about what's happening in the
The more and more time I spend studying markets and investing, the more
and more I harden in my view that trying to figure out what "the market"
is going to do is a waste of time. The rewards are always richer when I
focus on the smaller stories and dig into the details. Any nitwit can have
an intelligent sounding opinion on the market. Don't be fooled.
The great investors don't spend a lot of time trying to figure out what
the market is going to do next. They do something simpler than that. They
go through the market as if it were a produce stand and turn over a lot of
fruit and veggies looking for the good stuff at a price they like.
Those dreams - that house by the sea and the life of leisure - are
achievable. But you have to know the right way to go about getting there.
Investing well is part of it.
for The Daily Reckoning
P.S. At Capital and Crisis, we've found our own little pockets of value,
too, that have done exceptionally well in a short amount of time so far.
We've recently added SJW Corp. (SJW:nyse), up 27%; Northwest Pipe
(NWPX:nasdaq), up 18%; and Horizon Lines (HRZ:nyse), up 29% in only a
matter of months. Most recently, we've added water rights and Argentine
real estate. I expect these stocks will deliver good gains, too.
If you want to learn how to add value to your portfolio, see my latest
special report, here:
Capital and Crisis