Clearly this year has proven to be a difficult investing environment. Still, I continue to fare pretty well with my trading recommendations, as well as my investment names like Delta Petroleum (DPTR), Schering-Plough’s (SGP) 8%-yielding convertible preferred “B” shares, Covanta (CVA); and don’t look now, but Strong Buy-rated Cogent (COGT) “gapped” above its 50-DMA last Friday on big volume. I've liked the Cogent story for the past few months, believing this Homeland Security “play” should do well even if the U.S. economy slips into recession. With $5.00 per share in cash, Cogent appears “cheap,” and remains one of my individual stock recommendations. Yet while I love individual stocks, I also like ETFs, closed-end funds, closed-end notes, and particularly open-end mutual funds managed by PMs that have the skill-sets to navigate all investing environments.

To this point, I had dinner last week with Manu Daftary, captain of the Quaker Strategic Growth Fund (QUAGX). I warmed to Manu’s investing style roughly four years ago when I first encountered Quaker Strategic. What really piqued my interest was that, like me, Manu does not want to be “painted” into a “style box” (large cap growth, value, etc.).

Rather, he wants to invest in any sector that he thinks will make his clients money. To quote him, “If we don’t like it, we don’t own it!” Moreover, Manu is always looking to manage the downside risk and is unafraid to hold “cash.” Clearly that “foots” with my investment philosophy, for as repeatedly stated in these missives since 1999, “Don’t let anything go against you by more than 15% - 20%!” Further, like Manu, I'm always re-balancing positions (read: selling partial positions as they rally to keep their weightings in-line with the portfolio’s original object).

This technique allows profits to accrue and gives me cash for other opportunities as they present themselves. Indeed, to believe that the investment opportunity “sets” that present themselves today are as good, or better, than any that will present themselves next week, next month, or next quarter is naïve. To take advantage of those opportunity sets, you need to have some cash! On average, Manu maintains roughly a 15% cash weighting; but at times, like in 1999, has as much as 40%. Furthermore, like me, Manu is willing to take a stand, as seen by the fact that he currently owns no financials, no consumer discretionary, and no tech/telecom in his portfolios. He continues to search for “alpha generators” that can generate growth without balance sheet issues, as well as in any kind of economic environment. Clearly, I'm a big fan.

The call for this week: For the past few months I've fallaciously suggested that interest rates were going to rise, the U.S. dollar was going to firm, crude oil was subsequently going to decline (along with most other commodities), and that the major U.S. indices, led by the financials, were going to rally; emboldened by the steepening yield curve, which implies the economy is going to recover.

While I'm often early, over the years I've tended to be generally correct. And last week, that envisioned sequence materialized with the financials and early-cycle stocks coming to the fore.

Even though I believe it's a false move, the difference between perception and reality is where investors’ opportunities lie! Verily, I think the real surprise, going forward, may be that inflation rears its ugly head in 2009, as seen in the chart below from our friends at thechartstore.com, of how many work-hours it takes to buy a barrel of crude oil.


Click to enlarge

Just yesterday, I filled the tanks of my boat to the tune of $1,000 ($4.50/gallon for regular gas). I also bought steaks on the way home at $27.00 per pound, yet the Fed tells us there's no inflation! I feel this is clearly sophistry, and continue to invest and trade accordingly.

Page 1 | 2 | Back