Investment Strategy for 20092008 ReviewIn Investment Strategy for 2008, I said that 2008 should be a positive year for the stock market and to favor growth stocks over value. These predictions - as virtually any prediction - turned out to be completely wrong and 2008 will be remembered as the worst year since the great depression for investors.The S&P500 returned -38.5% and the Dow -33.8% (excluding dividends). The recommended mechanical portfolio made of 48 growth stocks picked from Cornerstone Growth and Magic Formula Investing underperformed the market with a return of -44.2%% (-50.9%% for the 20 "Cornerstone Growth" stocks and -39.5% for the 28 "Magic Formula Investing" stocks). In fact, small cap growth stocks were the worst performers this year and our portfolio suffered from its exposure to this group of stocks. The Dogs of the Dow strategy underperformed the market returning -41.6% (excludding dividends) affected by Citigroup and General Motors (*). The higher dividend yield would not have fully compensated for the stock price underperformance of this strategy. A 58 stocks portfolio made of the 48 recommended growth stocks and the 10 Dogs of the Dow 2008 (with equal weight) would have also underperformed the market returning -43.8%. (*) Incidentally, these 2 stocks have cut their dividends for 2009 and would be excluded from the dogs of dow 2009 (see below). 2009 Investing environment2009 is a year 1 of the presidential election cycle: usually an average to bad year for the stock market, whatever the interest rates direction.Valuations are difficult to assess since Earnings are likely to be revised downward. MarketWatch does not even show any value for the S&P500 P/E ! It indicates a P/E of 21.3 (resulting in an Earning Yield of 1/21.3=4.69%) for the Dow Jones Industrial Average with a Dividend Yield of 3.57%. This is the largest yield in a long time but it is likely to be reduced as companies revised or even cut their dividends in the current economic environment. These valuations of course compare favorably to bond yields that have been dropping as fast as the Stock Market. The 10 years US Government Bond being at 2.25%. So although the market appears to be relatively cheap, caution is warranted for 2009 as we're entering a period when the market has usually underperformed. A rebound in the beginning of 2009 is not excluded given the severe oversold situation. This would be compatible with the best 6 months market timing system that will be looking for an exit signal in the mid-April to early-May timeframe. This simple timing system has done pretty well this year with a loss of only -12.6% on the S&P500. 2009 Investing StyleAccording to Data Drive Investing, a year 1 of the presidential election cycle that is preceded with aggressive interest rates cut (the exact current situation) is favorable to value stocks and Relative Strength is not important (for holding period of 1 year).Therefore, for 2009, we will pick 10 stocks from Robot Stocks as well as the 10 Dogs of the Dow. Robot StocksHere are the stocks that pass the strategy as of December 31, 2008. The list is obtained with the stock screener
In Bold are the 10 selected stocks. They are:
2009 Dogs of the Dow
Note: MSN Deluxe Screener - as many other screeners - still highlight Citigroup amongst the highest dividend yielding Dow stocks. However Citigroup has suspended its dividend. Conclusion for the stock market in 2009
I wish you a great year 2009. |
| Go Back to Top
|