Securities Analysis as Taught Leads to Volatility - Weekly Blog # 705

 

Mike Lipper’s Monday Morning Musings

Securities Analysis as Taught Leads to Volatility

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

The long-term history of making money in the market is not  following the majority  with their money. In simple terms, choosing not to conform with what others are doing. Winning in the market means converting some of the wealth of others, often the majority, to our own. This maneuver requires using different approaches and tools than others use.

 

Sector Bets Fail to Produce Top Results

The academic course on Securities Analysis is taught as a companion course to accounting, or worse, macro-economics. Both work on past history and have precious little to do with future movements of companies, stocks, or economies. More useful studies would instead focus on profits and securities. 

All too often securities selection processes screen for companies which appear to be in the same industry, as measured by misleading government data. As a junior analyst I was assigned the steel industry. I quickly discovered that although the number of steel companies was small, it was a mixed bag of companies. You could divide the group by the location of their headquarters and proximity to critical resources, usually coal, or to a growing customer base. In this case an investor did far better with Inland Steel, based in steel-short Chicago, rather than in Pittsburg and West Virginia coal country. 

Another worthwhile distinction was the cost and quality of labor. In the early days of the externalization of producing payrolls, commercial banks were prominent. However, overtime they lost market share and eventually lost the entire market to independent payroll service providers who provided better services. They provided more help filing payroll tax returns and offered lower prices, due to their labor not being paid bank-type overhead. Today the payroll market is dominated by service companies with extensive and modern computer systems, which are good at servicing. (Our accounts own ADP.)

A final example is computers. Many of the large industrial companies manufactured the early computers, the biggest and best being IBM, a stock my grandparents owned. The key to their success was not only adequate technology, but superior leasing prices and great sales engineers. IBM’s top salesman regularly presented to Wall Street and was a missionary sales person. However, the industry changed from massive main frames taking up large airconditioned rooms, to desktop personal computers whose parts could be produced in low-cost regions of the world and could be assembled elsewhere. 

Dell started out by taking customer orders for computers which could be customize and air shipped to customers. Today, many believe Apple (owned in our accounts) is the leading company. This is the result of the late Steve Jobs’ focus on style and ease of use. His most important achievement however was handpicking his successor, Tim Cook, an expert known for supply management and development. What relatively few investors appreciate is its global network of Apple Stores and a growing mail order business generating repeat business, essentially building its own annuity business. (Remember, US automakers had market level price/earnings ratios when customers replaced cars every three years with newer models.)

Less popular ways of analyzing securities included: 

• Paying more attention to insufficient supply than excess demand.
• Focusing on differences in manufacturing approaches and costs.
• Understanding the personalities of key operational people vs known leaders and their educational biases.

We Don’t Create Winners, Losers Do

No matter how prescient and bright we are, to have great results we need others to create attractive entry prices and unreasonably excessive exit prices. Utilizing these as working assumptions, I am getting nervous about the flow of institutional and individual money in private equity/debt (private capital). For many years there were more good private companies offering participation in their attractive futures than potential investors. They attracted investors with relatively low entry prices. 

Recently we have seen a reversal, with a huge flows of institutional and individual money seeking to exit the public markets and enter the private markets. By definition, entry prices either directly rose or the firms had to carry senior debt prior to generating private capital returns. There is so much reversal of traditional roles that one of the oldest buyout firms, with a great long-term record, is converting some of their US and European investments to a publicly traded fund. For some of its investments Sequoia is trading up in liquidity.

One of the disturbing concerns in the privates market is the number of new advisers that have entered the market. They have increased the number of funds and are spreading the investment talent more thinly. In response, T. Rowe Price, an experienced investor in privates, is buying an existing manager to get the necessary talent in an increasingly competitive market. (Owned in Financial Services Fund accounts)

A number of well-known university and institutional portfolios have announced performance in excess of 40% for the fiscal year ended June 30. Some are probably reporting private investments with at least a quarter’s lag. (My guess is performance for the year ended March was better than the year ended June 30.) Most investors did not do as well and consequently some are likely to pile into an overheated private market with scarce investment talent. The history of investment returns is that it is extremely rare to find a manager who can consistently return over 20%, which is roughly three times the growth of industrial profits. The organizations that reported 40%+ profits undoubtedly benefitted from lower entry prices and better terms than is currently on offer. 

I am a long-term member of the investment committee of Caltech, an internally managed investment account with a talented staff. They have put a cap on their exposure to buyouts and venture capital. I applaud this decision because of the history of hedge fund performance. It shows that even very good hedge funds suffer when a minority of hedge funds experience serious liquidity problems. This was in part because of debt, but some of their holdings were also owned by trading interests desperate to liquidate some of their excessively leveraged holdings created by falling prices. This is a classic example of others causing some investors to have poor results.

Moody’s is also concerned about the rapid growth of inexperienced managers offering private capital vehicles. The credit-rater was criticized for the exponential growth of CMOs. (Moody’s recovered, and just this week was selling at a record stock price. Moody’s is owned in our managed and personal accounts.)

Historical Odds of Equity Bear Market

There is wisdom in the saying that history does not repeat (exactly), but rhymes. The ebb and flow of markets are driven by emotional excesses, with investors reacting to various stimuluses. I previously mentioned a successful pension fund manager liquidating his equity portfolio after it gained 20% in a calendar year, reinvesting the proceeds at the beginning of the next year. He produced a record absent of large losses, with reasonably good gains on the upside.

We may be approaching a “rhyming event”. I feel more confident taking a contradictory view when it is supported by large scale numbers. The US Diversified Equity Funds (USDE) have combined total net assets of $12.4 Trillion, representing 2/3rds of the aggregate assets in equity funds. According to my old firm’s weekly report, the year-to-date average gain was +21.01%, vs a 3-year average gain of +19.21%, and a 5-year average of +16.76%. More concerning is only 4 of the 18 separate investment objectives within the USDE bucket produced over 20% 5-year annualized growth rates. Of the 14 Sector Equity funds, only 2 grew +20%, and only the World Sector Fund average gained 20%+. At the individual fund level, only 3 of the 25 largest funds produced 20% growth rates. During the same 5-year period, the average taxable fixed income fund gained 3.34%, and the average high yield bond fund grew 5.47%.

Recently, a number of endowments reported gains of over 40% for their June Fiscal years, driven by successful private equity/venture capital investments. Some of these private investments were reported on a logged basis. Remember, in many cases they had spectacular performance through March, and have been relatively flat since then.

The cyclical nature of human emotions suggests that when earnings growth does not support lofty valuations, we are likely to have a “rhyming event”.

What do you think? 

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2021/10/are-we-listening-as-history-is.html

https://mikelipper.blogspot.com/2021/10/guessing-what-too-quiet-stock-markets.html

https://mikelipper.blogspot.com/2021/10/what-is-problem-weekly-blog-702.html

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

Copyright © 2008 - 2020

A. Michael Lipper, CFA

All rights reserved.

Contact author for limited redistribution permission.

Current Worries Obscure Long-Term Portfolio Thinking

There is too little enthusiasm about investments these days despite the fact that we have just slightly breached the old highs on the popular US stock market indexes. This weekend I seem to be besieged by too many worries to enjoy either my market price gains or a wonderful concert by the New Jersey Symphony Orchestra playing three Tchaikovsky pieces very well, plus a spirited encore. (As my wife Ruth is Co-Chair of the NJSO, it should have been exhilarating for me.) Somewhat like Tchaikovsky’s tragic to triumphant Fifth Symphony, my investment worries obscure the good results we and our clients have achieved, and what should be an attractive long-term future.

Worries

I find it difficult to rank worries as any one of them could be the proverbial canary in the mine shaft. Thus, I am just listing them in the order that they hit me.

1.    The demand for US $100 dollar bills is up, particularly in Europe. I take this to be showing a concern about the value of various European currencies rather than a money transfer tactic of the global underworld.

2.    Most of the financial press is devoted to the problems of Cyprus and some of the other peripheral economies rather than paying attention to the remaining parts of the world. China now has reserves of $3.44 Trillion which is about the same size of the entire economy of Germany. Interesting the last time China published its gold holdings was 2009.

3.    Due to the fact that governments are trying to dictate to their economies through the banking systems, financial transactions including loans are moving out of the depository banks and into “other’ financial institutions, often called the shadow banking sphere. In China for instance the growth in commercial and personal credit is greater than in the regulated banks. In the US a portfolio of bank stocks has been recovering, but is still behind the other financials’ stock price performance.

4.    The current chatter of the talking heads in the financial press is focused almost exclusively on the pace of the expanding economy. People seem to have forgotten that in every decade there is at least one economic recession and often two. Where this plays a role is in the “happy talk” emanating out of Washington about reaching a balanced budget over the next ten years. According to John Mauldin, there is not any suggestion that the period will include one or more recessions which could balloon government social spending.

5.    A recent census report adding all the levels of US government spending per household concluded that the average is approximately $50,000 and the median household income is about $49,000. No wonder that there is not enough consumer saving to pay for the physical infrastructure needs and intellectual infrastructure needs to create the knowledge and work habits to fuel this economy.

6.    The price, volume, and shorting actions in Exchange Traded Funds (ETFs) suggest to me that an important part of the trading in these vehicles is being conducted by short-term traders similar to hedge funds. If more individual investors were using them I would be worried by a recent study by Mark Hulbert as published online in Barron’s on Thursday. Mark compared the performance of a number of ETFs to actively managed funds within the same organization. He found that, on average, the active managers out-performed their less expensive stable mates. This may be particularly important in the next major market decline where the active managers can either raise some cash and/or get out of some of the larger volume stocks that are leading the market down. (Of course when there is a rally, as they say “cash is trash” and can hurt performance.)

7.    This weekend some of us will be watching the Asian markets and later the opening of the European markets to see what the price of gold will be doing after a major fall at the end of last week. As a well-known and respected non-gold bug said to me this weekend, “The reason to own gold, in some form, has to do with fundamental concerns about the continuing value of paper money; it is just as present today as it was last week month or year.”  The purpose of gold is as an insurance policy within a portfolio of other assets. For generations European private bankers have urged their wealthy clients to own 5-10% of their portfolios in some form of gold. Just as I don’t like to drive on the road with drivers that do not have appropriate auto insurance, I hope that a few do not use the drop in the price of gold as an excuse not to pay their “value of money insurance policy.”

Analyzing your long-term investments

As indicated, the list of worries above is obscuring what you and my fellow long-term investors should be focusing. I am an advocate of dividing one’s portfolio into different time horizon and special pocket investments. At the moment I want to focus on the longer-term time horizon bucket. This is the bucket to fund multi-generational needs for both families and charitable institutions. 

One useful exercise is to look at the current market weighting of each of your investments and assign them into these somewhat distinct categories:

Category one: The portion of your portfolio which is the result of the accident of gains. One never expected this to be such a big winner, even if it was the family company. Now one has a very large unrealized capital appreciation = tax and/or disposal issue.

Category two: Holdings that are selling at very deep discounts compared with other market indicators. The future price potential is large and if successful in later years could be moved up into category one.

Category three: Some investments that are selling substantially below what a knowledgeable buyer would pay for the company, particularly if a new management could be installed. Dell?

Category four: There are some very high quality companies whose shares most of the time reflects their quality, but not all the time. This weekend I read the very long proxy and annual report of Goldman Sachs, a stock that is owned in my private financial services fund. For some this may be a controversial firm, but I find in general in most of their varied businesses they do conduct their activities in a high quality fashion according to the ethics of the business. I own other high-quality names but I was using Goldman just as an example.

When you get all through assigning weights to these and/or other categories see whether they are in an appropriate mix for your long-term needs. I would be pleased to discuss this exercise with you if it helps to bring some additional clarity to your investing.

_________________________________

Did you miss Mike Lipper’s Blog last week?  Click here to read.

Did someone forward you this Blog?  To receive Mike Lipper’s Blog each Monday, please subscribe using the email or RSS feed buttons in the left column of MikeLipper.Blogspot.com .

Copyright © 2008 - 2013 A. Michael Lipper, C.F.A.,
All Rights Reserved.
Contact author for limited redistribution permission.

Leadership Change Late in the Game

Regular readers of these posts already know that I have been prematurely speculating about the risks of a top of the market. Most securities analysts date the last important bottom as of March 9^th, 2009. Almost exactly four years later, the Standard & Poor’s 500 Index (S&P500) reached a new high on the last trading day in March, 2013. Market cycles vary in length from bottom to peak, but generally they are in the 40 month range. (One of the sounder investment management organizations uses a rolling four year period as the shortest benchmark for its internal incentive compensation.)  Each market cycle is a bit different than those of the past, but they have many of the same characteristics. Most often on the rise up, the sectors that lead make sense as they come from deeply discounted price levels. In this particular case the second best performing group from the market cycle bottom was the financials, a group that is of particular interest to me. (I believe that a market boom needs to excite the owners of financial shares. With that thought in mind, I manage a private financial services fund that has been enjoying this rise because among the financial leaders within the S&P500 were Discover Financial, McGraw Hill, American Express and AIG. All of these, I have owned for many years.) 

Buyers need a quantity of sellers before they can push stock prices higher. The coming week or weeks will likely supply some sellers and some will say the doubling off the bottom is enough. Others may feel that after low double digit gains in the first quarter, the time would be right to lighten up on their positions. They would be urged to do so by those who insist that there should be a tight correlation between the prices in the market and their generalized view on the domestic and global economy. (As long as there are numerous economic pundits that are somewhere between wary to negative on the market, I can take a relatively relaxed view of the future for long-term investment accounts similar to what we manage.) 

The drivers so far

Arranged by the leading central banks, the best thing driving the stock market higher is the impact of the banks’ experimental policies to force interest rates to confiscatory levels. These efforts have done much to the maligned credit ratings which have proven on balance to be correct in the long run. Recognizing that it is almost impossible for a credit rater to speculatively lower credit ratings, they do provide a useful purpose of confirming current opinions as to the chances of timely payment of principal and interest. At the top of the credit rating pyramid is the Nine-AAA league composed of the sovereign debts rated AAA by S&P, Moody’s, and Fitch. According to the Financial Times the size of this pool has shrunk by 60% from $11 trillion to $4 trillion since the beginning of 2007. (US, UK, and France are no longer AAA rated.) The size of the drop is first a measure of the scale of the combined fiscal and monetary overreach by governments and the sharp reduction of the size of the pool of so called totally risk-free assets from a credit standpoint. The message delivered to investors is that there is relatively little in risk-free assets available, so if you want to earn a somewhat reasonable rate of return you must assume other risks in the bond and stock markets. 

As many of you probably already know, I spend a great amount of time analyzing mutual fund data. I do not pay much attention to the net flow data that combines the dollar totals of sales and redemptions, since I believe that the motivations behind each stem from very different needs. I do pay attention to gross redemptions. According to the Investment Company Institute (ICI), gross redemptions of equity funds in the first two months of 2013 declined $12.7 billion to $224 billion whereas gross redemptions of fixed income funds rose $21.6 billion to $ 141.9 billion. Strategic Income funds rose $12.8 billion in redemptions for the year to $65.7 billion, followed by increased redemptions in high yield and government funds. The Strategic Income fund bucket includes those fixed-income funds that can move from one type of fixed-income market to others. I believe that the shareholders are concerned that they were not exiting governments and high yield fast enough. My guess is that these figures are just showing a bit of nervousness on the part of some mutual fund holders; the largest single category of redeemer was institutional investors who redeemed $158 billion up $29 billion from the first two months of 2012. These numbers do not support the much-heralded great rotation out of bonds into stocks. I believe that thus far the biggest single contributor to the increased gross sales of equity funds is coming from a $121.8 billion increase in money market redemptions to a total of $2.4 trillion. Thus there is a reasonable chance that when individuals and their managers recognize that for the moment they shouldn’t fight the Federal Reserve, they could commit their assets that may well drive the stock market higher. Or they could decide that the risks are too high already in stocks. 

Need for new leadership

On the rise from the 2009 bottom, the leading large portfolio funds have been managed by value-oriented managers. They have bought and owned stocks of companies that were statistically cheap using the company’s financial statements as a guide. This is one of the reasons that the financials appealed to these portfolio managers globally. Many of these stocks were yielding an above stipulated inflation rate or would if permitted by the central banks. Other stocks that were found in these portfolios had rising operating and before tax margins. This was mostly achieved by capital and labor efficiencies in spite of limited sales growth. Without a global pickup in sales many of these companies will not be able to show earnings growth. This is exactly the problem facing those who need the stock market to move higher between now and the next Congressional elections. 

Possible new leadership

With fewer and fewer high quality bargains available the value-oriented investor is finding it is difficult to identify new large names. At the same time a growth-focused investor is being limited by the expected lack of volume growth. One possible area for future strength is broadening the concept of value beyond statistical value based largely on reported financial statements. I am suggesting an old merger & acquisition gambit of searching for strategic value.  Strategic value rests on a well-researched view of significant change. In an oversimplification, one could look at these opportunities through the eyes on the cash flow statements or a materially different earnings structure.

One of the key questions is: are there significant opportunities for the company and its peers to materially reduce their capital expenditures? As a relatively young analyst I spent time with an older leading analyst of aluminum producers. He became bullish on these stocks when the companies were shutting down the hot lines and factories. His bullishness was based on the idea that with less available competitive capacity, demand would force prices up until the next wave of expansion would take place a few years in the future. Airlines have followed a similar strategy through their mergers to reduce excess capacity. In a minor way we have seen a similar thought pattern in the financials, with the waves of expanding and contracting fixed-income trading and branch building. The final objective of these strategies is to use cash flow to pay off debt, pay dividends and shrink the number of shares outstanding. Some practitioners of these art forms have produced brilliant results. To some degree the asset allocation skills of Warren Buffett and Charlie Munger at Berkshire Hathaway^* and those of Leucadia^* fit into this model.  

Currently on offer are two very different investments with dramatic change elements. The first, alphabetically, is Dell. The question here is whether a change to a more patient capital structure and/or change in management can produce good long-term results. While it is possible, I personally have my doubts, as the original driver of these discussions was an embarrassed (or should have been embarrassed) shareholder. Those involved are more financial engineers than sustainable company builders. I could be wrong and this type of shareholder action could become a model for the new leadership. There are lots of candidates for this kind of operation, but not without risk.

The other stock on offer and somewhat a competitor to the first is Hewlett Packard which likewise has been gravely wounded by the computer wars and unfortunate acquisitions. The difference is that the current CEO is in an announced five year turnaround plan. She has solid marketing and management experience. I believe that it is clear that the future company will not be producing the same products if at all or in the same way.   

While less attractive to me is what I have called “the three M” Strategy. The three “M”s stand for McKinsey, (a consultant with a dubious track record of success; e.g., Enron), Merrill Lynch and Morgan Stanley^*. The two financials have used the consultant to provide cover for what their managements wanted to do and have hired former McKinsey partners. Both of the two operating companies are trying to improve their balance sheet by selling off elements of their empires to improve their balance sheet ratios. They are doing this rather than materially improving their products and delivery systems. Nevertheless, they may well succeed; I hope so, as they have a number of talented people on board.

Each of the three alternatives to build increased strategic value could be part of a new market leadership which I think is needed to go from the newly established highs to materially higher stock prices. 

^*Owned in both my financial services fund and personal portfolios

What Do You Think?

________________________________

Did you miss Mike Lipper’s Blog last week?  Click here to read.

Did someone forward you this Blog?  To receive Mike Lipper’s Blog each Monday, please subscribe using the email or RSS feed buttons in the left column of MikeLipper.Blogspot.com .

Confessions of a Holder: Be Not a Buyer or Seller Now

I appear to be semi-frozen in my portfolio right now, not wanting to buy or sell significant parts of our investments. I speak not only as a paid investment advisor who wishes to continue to be paid, but also as a steward of my family’s and personal accounts. The continuation of payment from a long-term strategic investor has caused many advisors to make changes to portfolios look as if they are busy earning their fees. While there are almost always chances of significant deterioration of the long-term prospects of an investment as well as newly discovered research/analysis that makes previously bypassed investments attractive, many portfolio changes are disruptive and I suspect are done merely to look busy. In managing my own and family money as well as serving pro bono on investment committees, there is no need for me to appear to be looking as I am in action rather than observing. Thus, these privately focused accounts are a helpful guide to my professional responsibilities.

With those thoughts in mind, I want to explore with you my current thinking about my personal rather than professional investment duties.

Where are we in the current investment cycle?

Any study of history shows that in almost any activity there is a pattern of expansion and contraction. Even in terms of differing philosophies, they move further apart or become more concentrated in some form of a Hegelian synthesis, until there is another period of disruption of central tendencies. Cycles are endemic to human behavior. Thus, we regularly find investment markets moving in a cyclical format.  We clearly had a market peak in 2007 and an economic/financial fall in 2008 and a stock market bottom in March 2009. Numerous commentators will use these dates to chronicle the latest expansion with comments that some stocks and some funds have risen past their 2007 highs. The politically-oriented economists will focus on 2008 as the turning point and surviving market investors will judge performance from March 2009. (I suspect that many advisor “pitch” books and advertisements will start trumpeting five year performance numbers as well as the consultants’ favored three year period to show investment expertise rather than recoveries from depressed levels.)   

In the light of the above thoughts, I look at my own personal accounts which are loaded with stocks of financial services companies with heavy emphasis on investment managers and broker/dealers both in the US and elsewhere.  The recoveries in general have been remarkable. Careful analysis of the names in the portfolio can be grouped into two categories. The first are the leaders in their segments which have recovered the most. The second group were perhaps value traps; companies that were selling way below the cost to recreate them in sectors that traditionally large companies wished to enter to fill out their product offerings. While these have regained some of their lost ground in terms of stock prices, they have underperformed the leaders. This dichotomy between the two groups leaves me in a quandary and as usual I turn to the study of the current market structure for a guide to the future different from the extrapolation of current trends.

What am I seeing?

The leadership group’s stock prices are back into their “normal” levels; thus I continue to hold them in the belief that if the current expansion cycle ends soon, I will want to hold the leaders for the next expansion when we may see a full uplift to the global economy and its needs for viable financial services leadership. Up to this point I have labeled leadership companies without describing the basis of their leadership. Statistically these companies are among the biggest in their defined sectors, but not necessarily the largest. They have grown internally without the benefit of large acquisitions, but with the occasional willingness to bring a few talented outsiders into key decision making roles. Some of their larger competitors were put together through mergers and acquisitions which make their management focus on political decisions within their expanded empire.

Saturday night I was thinking about the nature of great leadership. My wife and I attended a birthday party for George Washington at his Mount Vernon home. (Actually it was to celebrate his 281^st birthday.) The speaker was Ron Chernow, the author and historian, who discussed Washington’s leadership in his two terms as president. What struck me was that General Washington, not Congress, created the concept of a cabinet within the US government. His was only three: Hamilton in Treasury, Jefferson in State and Knox in the War Department. He chose men who were better educated and in many ways more intelligent than him. He encouraged vigorous debate and tolerated strident disagreements, particularly between Hamilton and Jefferson. Yet in his two terms as President, including turning down a third term, he established more policies and better practices than any of the presidents that followed him.

In my mind I applied the lessons from Washington to my list of leadership companies’ attributes:

1.    Attract the best available minds, even those that are smarter than the leader (CEO).

2.    Encourage debate within a small select group.

3.    After listening to critical experts, the CEO should thoughtfully make up his/her own mind.

4.    Knowing when to leave, hopefully at the top.

I will continue to look for other companies with similar leadership attributes, hopefully with not too demanding stock prices.

While I am content with my portfolio’s leadership positions, what concerns me are the holdings in companies that in some respects are worth more dead through acquisition than currently alive. When I carefully analyze my bets in these companies, they are really dependent upon market actions (or to be blunt, waves of speculation). At this time I may have the winds at my back to push these stock prices higher. The winds in my favor are:

1.    A rising tide of merger & acquisitions as commented upon by Moody’s^* and others.  The credit rater is worried that these deals will weaken the acquirers’ balance sheets. On the positive side, the stock prices of a number of mid-sized investment banking firms are selling at above market price/earnings ratios which seems to assume that they see their earnings will rise on the basis of the fees they will earn by representing buyers and sellers in these deals.

2.    The market appears to be concerned about the apparent “take-under” of Dell, unless you see it as a discount that the current owners need to pay to get out from under Michael Dell’s leadership. The market responded positively to the surprise announcement of the purchase of Heinz by 3G and Berkshire Hathaway*. Part of the positive reaction to this deal was that it showed Warren Buffett’s technique of negotiating the issuance of a high dividend rate preferred stock (9%) for a larger amount than the purchased equity.

3.    The interest of investors appears to be increasingly speculative. For example, in the five trading days ending Friday, seven of the ten largest stocks in terms of dollars traded were ETFs. These included two investing in the international developed markets, one in emerging markets, one in smaller market caps, and gold as well as the leader, S&P500. The other three stocks were Bank of America**, Citigroup** and JP Morgan**. With the financial stocks as the best single sector last year, some may be speculating that the three large banks will continue to be performance leaders. (Rarely does the same sector lead two years in a row unless it comes from severely depressed prior periods.) 

Disclosures:

*        Long positions held in my private financial services fund

**      Held personally

The difference between my leadership group and my potential acquisition targets is that I might add to my leadership holdings if there is a serious market break, but I may even sell if the targets’ prices drop as my patience could be worn out.

Please share with me privately how you look at your portfolio.

_________________________________

Did you miss Mike Lipper’s Blog last week?  Click here to read.

 Did someone forward you this Blog?  To receive Mike Lipper’s Blog each Monday, please subscribe using the email or RSS feed buttons in the left column of MikeLipper.Blogspot.com .

Copyright © 2008 - 2013 A. Michael Lipper, C.F.A.,

All Rights Reserved.

Contact author for limited redistribution permission.