In Search of the Perfect Investment

Following yesterday’s column on bonds, bond funds and high-yielders, a kindly  friend writes, “As  usual, I disagree with many of your investment conclusions. I would bet heavily that stocks outperform bonds over 3 years.”

In reply, I wrote I cannot argue with you about whether equities will be up or not over the next year. They probably will be. What I can say is that I’m lousy at picking both equities and managers. As I wrote a few days ago in the column, I’ve had one great manager and two mediocre ones. The great manager fired me. The two mediocre ones are above what I gave them. So far, they’re above bank CD returns, which is good. That said I have personally put together a portfolio of some equities (and bond funds) – AAPL, AGNC, ANH, BHP, BNY, C, CVX, DD, ENX, EWA, F, GLD, JNJ, KO, NLY, PNY, SGOL, SVR, T, UNG and VZ. My own hand-picked portfolio is up. Actually above what I paid. But the big plus is that it pays nice cash dividends. My BIG investments are triple tax-free bonds. They have done very very well. I have tightened the maturities, since one day — not soon — interest rates will rise and the value of my bonds will fall. My goal is income —  the more tax-free the better, since I anticipate much higher taxes in the next few years.  I don’t have a real day job. This column doesn’t pay the rent. In fact, it barely pays its expenses. I need money to take care of my family’s inability to budget. Moreover, stocks are overvalued today. The S &P 500 is  at  18 P/E.

But you idiot, my friend replies. That’s an average. Here are some of the S&P 500 with ultra-low P/Es.

As I look at the chart, I think some of the stocks with the very low P/Es belong there and will go lower. Their prospects are not good. The happiest hunting ground is probably in the middle.

More to mull for the weekend.

Wonderful color photos of America from 1939-1943. From the Denver Post, click here.

Difficult pictures from Afghanistan. The Boston Globe runs a site called The Picture. They tell the story in photos. Here
Australian soldiers carry a coffin of Pvt. Nathan Bewes at their base in Tarin Kowt, Uruzgan province, south of Kabul, Afghanistan on July 12, 2010. Bewes died in an improvised explosive device blast in Uruzgan. (AP Photo/Dusan Vranic)

You can see the other 46 incredible photos at the The Big Picture.

Harry Newton, who’s mulling. One big key is to not to confuse the lousy employment numbers with the improving corporate earnings. In fact, lousy employment is, in some  ways, good for companies. It keeps their expenses down.