Investment Strategy for 20082007 ReviewIn Investment Strategy for 2007, I said that 2007 should be a positive year for the stock market and to favor growth stocks over value. Both predictions turned out to be reasonable.2007 was a bumpy year for the stock market with the subprime crisis. Markets were volatile over several periods of the year: March, July-August and October-November. Netherveless, markets delivered positive performances with the S&P500 returning 4.1% while the Dow returned 7.2% (as of December 27, excluding dividends). Growth stocks beat Value stocks: the Russell 3000 Growth returned 12.1% while the Russell 3000 Value returned -0.6%. The recommended mechanical portfolio made of 42 growth stocks picked from Cornerstone Growth and Magic Formula Investing outperformed the market with a return of 16.3% (7.5% for the 22 "Cornerstone Growth" stocks and 26.1% for the 20 "Magic Formula Investing" stocks. See details at 2007 Portfolio Returns). The popular Dogs of the Dow strategy underperformed the market returning only -0.3% (excluding dividends) partly affected by Citigroup's very poor performances. A 52 stocks portfolio made of the 42 recommended growth stocks and the 10 Dogs of the Dow 2007 (with equal weight) would have still outperformed the market with 13.1% returns. 2008 Investing environment2008 is a year 4 of the presidential election cycle: usually a good year for the stock market.In addition, years 4 of the cycle provide better returns when interest rates are falling. Regarding Valuations, using the Beat the Dow with Bonds model, here is what we have as of December 28, 2007:
Valuations are attractive since S&P500 Earning yield is greater than the 10 Years Government Bond yield. 2008 should therefore be favorable for the Stock Market. 2008 Investing StyleThe current environment is favorable to growth stocks that perform well in years 3&4 of the presidential cycle.Therefore, our 2 mechanical growth strategies used in 2007 are still adapted for 2008: Cornerstone Growth and Magic Formula Investing (see also Magic Formula Investing with MSN Screener). Here are the stocks that pass the strategies as of December 28, 2007. Cornerstone Growth
Magic Formula InvestingNote: The improved Magic Formula Investing screen with MSN is used.
In Bold are Tier 1 stocks (the most liquid) at Foliofn. 20 Cornerstone Growth stocks and 28 Magic Formula Investing stocks qualify. You may just buy these (whichever broker you use): you will then have 48 stocks for the 2 strategies. If you're a more cautious investor, you may still want to balance your portfolio with the 2008 Dogs of the Dow. 2008 Dogs of the Dow
There's only one change compared to the "Dogs of Dow 2007", "Home Depot HD" replaces "Merck &Co MRK". Note: MSN Deluxe Screener misses AT&T. Conclusion
I wish you a great 2008 Investing year. |
| Go Back to Top
|