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Hope Isn't a Very Good Investment Tool


Investors should stop trying to pick bottoms and focus on what is working. There are many other industries and stocks where fundamentals are exploding.


If you're wallowing in the mud, bottom fishing, trying to catch the Fed's next move, stop. The truth is we have no idea how good or bad things really are in financials, homebuilding stocks, etc. These stocks look cheap but the E in the P/E is more of a hope and a prayer.

Last time I looked, hope wasn't a very good investment tool. Investors should stop trying to pick bottoms and focus on what is working. The fundamentals in some of these sectors smell worse than driving down I-95 by Elizabeth, New Jersey. Get over it.

There are so many other industries and stocks where fundamentals are exploding. Why must we wrestle in the mud? If your investment strategy hinges on every word coming out of Ben's mouth or you find yourself staring at the bulge in his briefcase then maybe it is time to try something else.

I fully admit there is a small legion of investment professionals capable of successful bottom fishing. Let me assure you, this is a very exclusive club where it is insanely difficult to succeed. These managers have to do five times the homework to achieve the same level of returns available using other methods. Even I can't resist the call to do some bottom fishing but if this is where the bulk of your funds are, good luck.

When the fundamentals turn there will be plenty of time to make money in these lagging sectors. Yes, if you wait for the turn in brokers you will be buying Goldman Sachs (GS) over 200 but there will be a high probability it is on its way to 300.

I like to work it from the bottom up. Let the numbers do the talking rather than trying to focus on the world from 30,000 feet.

Much of yesterday's action was guided by the rumors of Goldman buying S&P futures and Bernanke's letter to Senator Chuck Shumer, hinting of a rate cut. Stick to your discipline rather than focusing on the noise. If the Fed cuts and you get the big pop in these stocks use it to reallocate your resources. The Fed will be admitting that it is worse than we think.

There doesn't seem to be enough evidence to make the call that growth around the world is ready to stall because the U.S. is struggling. Despite the probable weakness expected in markets overseas, Global Telecom stocks are still screaming to be bought. Stocks like Turkcell (TKC), Brasil Telecom (BRP) and Telefonos de Mexico (TMX) all have 8% plus earnings yields. These are emerging market stocks with higher risk, so size any investments accordingly.

We can own the stocks with great fundamentals and momentum or wallow in the mud with investments like Wal-Mart (WMT), which has been disappointing investors, including yours truly, for nearly ten years.

No positions in stocks mentioned.
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