Thursday, December 10, 2009

Fortune: Stock Roundtable with Barry Ritholtz, Steve Romick, Ron Muhlenkamp, Jason Trennert, and Susan Kempler

It's that time of year... the annual parade of round tables, "best of", picks for 2010, and the like.  Usually I find these type of things quite useless, but Fortune's 2010 stock outlook has a very interesting cast of characters.  Aside from Barry Ritholtz, whom we cite often, one of the best mutual fund managers (whom almost no one hears about) Steve Romick of FPA Crescent (FPACX) is involved.  Jason Trennert is often on CNBC but is a strategist so it is impossible to tell how accurate he really is, and Ron Muhlenkamp of Muhlenkamp Fund (MUHLX) has a good long term record (10+ years), although 2008 was very rough on him and ruined his 5 year results. 

Follow the link above for the full read, some snippets:


High anxiety unites most investors these days as the U.S. economy struggles, the global economic order shifts, and the emerging "new normal" feels distinctly strange. To get some calming perspective -- and specific advice -- we convened five top-ranked investing pros.

Susan Kempler is a portfolio manager for the giant TIAA -CREF organization, which invests nearly $400 billion of retirement plan assets. Ron Muhlenkamp, who runs his own fund firm, has been a student of investing for 40 years; this is his seventh recession. Barry Ritholtz is chief executive of Fusion IQ, an online quantitative research firm that is constantly screening thousands of stocks. Steve Romick manages the high-performing Crescent fund for First Pacific Advisors. And Jason Trennert, often ranked among Wall Street's top strategists, guides investing strategy at Strategas Research Partners, which advises institutional investors.

When the team sat down recently with Fortune's Geoff Colvin, a few themes emerged clearly: respect for large-cap quality names and disdain for gold mania, among others.

But calmness amid the turmoil? Turns out these denizens of the markets may be every bit as anxious as the rest of us -- they just handle it better. As Muhlenkamp observed, "Investors pay us for our stomachs, not our heads."

RITHOLTZ: First, it's pretty clear that the Great Recession ended in March, and now we've kind of been muddling along with a fairly typical recession. You still have deflation in most asset classes outside of equities. We're losing a quartermillion jobs a month. Anything that looks like a glimmer of green shoots, to borrow a phrase, pretty much has been juiced by government stimulus.

So the first cash for clunkers was the bailout of Wall Street. The second one was of the automakers. We're still doing it with housing. Wherever you look and see something that's relatively positive, there's some artificial stimulation going on. That makes us look at the data and say this isn't a healthy organic economy.

That said, sometimes the market and the economy go their separate ways. The example we're fond of using is that in the 1990s the Nikkei in Japan had four rallies greater than 50%, and it was still in a recession.

ROMICK: You can use gold as insurance against both inflation and a declining U.S. dollar, and there are ways to do it without buying coins or mining stocks. There are less traditional ways to add protection to your portfolio.

For example, you could put on a bull call spread: Sell the July 2011 call tied to the ETF for gold, the SPDR Gold Trust (GLD), with a $2,000 strike price, and at the same time buy a call with a $1,500 strike at the same maturity. You would capture as profit -- less the premium you pay for the calls -- the price movement of gold above $1,500 an ounce with a cap of $2,000. Unlike owning the metal outright, you'd have a small downside -- the price of the calls -- and you could make 19 times your money if gold were to reach $2,000 an ounce.

RITHOLTZ: We look at the ratio between gold and silver, and silver will tend to be dragged along, kicking and screaming, with gold. But lately it's been lagging. So if you want to play gold in a slightly safer way, there's an ETF for silver, the iShares Silver Trust (SLV). You could look at the historical relationship, and buy it when silver is cheap relative to gold.

RITHOLTZ: The bonds that I would suggest, because they are kind of interesting and relatively new, are the Build America bonds. The federal government is essentially paying the interest for states that issue bonds to pay for infrastructure projects as part of the stimulus plan -- bridges, roads, thruways. You could put some money in a New Jersey Turnpike bond.

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