Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Jeff Saut: Risk Can Be Diversified Away


2009 will be stock pickers' year.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

"In December 2007, Barron's published an article [in which] 12 well-known strategists listed their 2008 earnings estimates and year-end 2008 price targets for the S&P 500. The earnings' estimates ranged from a high of $101 to a low of $85.65, while their price targets were scattered between 1525 and 1750.

"None of the strategists predicted a recession and Tobias Levkovich believed that stocks were 'screamingly cheap relative to bonds.' Similarly, Abby Cohen noted that the S&P 500 was trading at just 15.6 times average 2008 estimated earnings. For 2009, these 'experts' now expect the S&P to increase to around 1100.

"I confess that I have no idea where the S&P 500 will be in a year's time, but given the catastrophic economic conditions, I am convinced that governments around the world will increase the intensity with which they will attempt to save the world with monetary and fiscal measures.
--Marc Faber, The Gloom, Boom and Doom Reports (as paraphrased by me)

I have read the insightful Dr. Faber for a long time and have always found him both thought-provoking and extremely helpful. He's an outside-the-box thinker, which is why I highly recommend his newsletter. Like him, I have no idea where the S&P 500 will be a year from now.

Still, the media calls every December to ask, "Where do you think the S&P 500 will be a year from now; and, what are your earnings projections?" My standing answer can be found in the first paragraph of Ben Graham's legendary book, The Intelligent Investor: "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

Therefore, while predicting/forecasting the future may be fun and exciting, it is by default, according to Dr. Graham, "speculation." Nevertheless, in December 2007, the media countered my "Grahamism" argument by asking, "Well, the consensus operating earnings' estimate for the S&P 500 in 2008 is $102, and the consensus target price is 1620. What do you think about those numbers?" My response was, "I think they're both way too high."

That being said, I was still shocked at how bad last year turned out to be, even though I was somewhat prepared for it. What my firm got right was raising a lot of cash in November/December of 2007 and entering 2008 in a very defensive mode. What we got wrong: Not raising enough cash, and not being defensive enough.

Going into 2009, however, I actually have a more positive spin than most. Indeed, I continue to think the capitulation, and/or psychological "low," was recorded on October 10, 2008, when roughly 93% of the stocks traded on the NYSE made new yearly lows.

Meanwhile, at least so far, it appears the "price low" was recorded on November 20, 2008. Accordingly, I have positioned accounts (using a scale-in and hedged approach) for a short/intermediate-term rally into mid-January. From there, I believe the major averages should be due for a pause/pullback as they contemplate the new administration and when the recession will end.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos