1. What advice are you giving subscribers/clients to weather the current storm?
Thanks to our market timing system, we’ve been advising subscribers to be mostly in cash for months. Since the bear market started in October 2007, our Model Portfolio has averaged more than 50% cash. More recently, we’ve been 65% or more in cash since late June and a whopping 90% or more in cash since early September—so we avoided the market’s crash, which was gratifying.
Most people believe the market cannot be timed, and indeed, it isn’t the easiest task. But our system is simple-we follow the market’s trends. And because we’re focused on the market itself, that means we’re guaranteed never to miss out on a major bull move, and we’re guaranteed never to be heavily invested during a prolonged bear phase. The results have been terrific, and we’re looking forward to getting onboard early on in the next bull market.
2. Is your focus on safety or profits or both, and why?
Right now, our focus is on capital preservation. Of course, we’d love to be in there buying stocks hand over fist out and cranking out profits; that’s what got us into this business in the first place! But a little-known fact is that, if you try to make money all the time, you’re going to end up far behind the investor who’s patient and waits for the right environment.
We haven’t been totally inactive in recent months, and we’ve been advising our subscribers that it’s fine to take small positions in a resilient stock occasionally. But the fact is, the odds are against making money on the long side, at least until the trend of the market turns back up. Thus, for now, it’s about safety. When the tide turns, we’ll be aggressively investing, because big bear markets are always followed by big bull markets.
3. What do you think it will take to inject confidence into the markets?
Confidence is important, but we believe the market is doing what it always does-looking ahead, and telling us what the economy is going to look like six months down the road. Thus, to get confidence back, investors need to see some evidence that corporate profits are halting their downward slide, and the economy itself is getting back on track.
Not that the market is waiting on GDP reports. Like I said, it’s looking ahead, and has already discounted a terrible downturn. But confidence will return for good not when a new leader is appointed or a new budget bill is passed, but when there is some certainty (the market hates uncertainty) about the economic and profit outlook.
4. Would you have voted for or against the last “rescue” bill, and why?
Honestly, we don’t get into such things. We let other people try to be smarter than everyone else and figure out the inner workings of Washington D.C., balance sheets, Alt-A loans and the like. That doesn’t mean we don’t follow the news at all—we know what’s going on. But nobody can predict whether or when a bill from Congress will be enacted, never mind how it’s going to affect the stock market.
We will say that we believe it was a mistake not to take some of the toxic assets off the banks’ balance sheets. The market was expecting that, and when Treasury went away from that plan, it left a bunch of banks with an extra few billion dollars from capital injections, but still hundreds of billions of dollars of bad debt. It will be interesting to see if Uncle Sam goes back to its original plan in the weeks and months ahead.
5. What would be your fix for the financial crisis, and is a fix in this sector necessary to boost the markets?
Again, we try to stick with what we do best-find the best-performing stocks in the market with new, revolutionary products, and can rise many-fold in price. And, of course, follow the market’s trends, so that we’re investing when the wind is at our backs, not in our face. We’ll leave the economic prescriptions to others. The only thing we will say is that it’s important to give incentives to those who have excess capital—whether they’re individuals, companies or even countries-to deploy it in riskier assets, as opposed to ultra-safe Treasury bills. Such incentives can help the economy get back on the growth track.
6. What three stocks would you buy today?
With the market in a downtrend, we’ve been busy building and fine-tuning a Watch List, and our three favorite names are: Cubist Pharmaceuticals (CBST), a small biotech firm with a dominant anti-infection product that treats many complicated skin and skin structure infections; Myriad Genetics (MYGN), which is a leader in the new field of cancer predisposition testing, allowing people to see if they’re genetically more likely to develop certain types of cancer in the years ahead; and Hudson City Bancorp (HCBK), a mortgage lender that never made a sub-prime loan, and operates in some of the wealthiest communities in the country. All three are profitable, growing at least 40% a year and have the potential for many more quarters of big growth-despite the slow economy.
7. How does your advisory service help its subscribers/clients get through times like these?
We do what we’ve always done: Give the best advice we can (which includes going to cash), and consistently put the odds in the subscriber’s favor. Our entire system is based not on personal opinion, but on how the market actually works. We know what bear markets look like, how they bottom, and how new bull markets emerge. We know what the very best stocks of a new bull market look like. And we know that these new leaders are NOT the same as the leaders of the last bull market.
Thus, we keep subscribers up to date with a Watch List of new, exciting growth stocks that can lead the next upmove. And we advise them to practice patience-a new bull market is going to come, and it’s simply a matter of waiting patiently for it to arrive. If we had to guess, we’d say we’re near the end of this bear phase, or at least, in its latter innings. We’re already 13 months into the decline, so a sustainable rally-even if it’s “only” a bear market rally-could emerge at any time.
8. If you had an average Joe investor standing in front of you, what would you say to him/her to ease concerns and raise confidence in the economy and markets?
I would tell any investor that the stock market is still a place where you can make a lot of money … if you have a proven system and follow it. There are going to be huge opportunities once this bear phase ends, but you have to be there, and you have to know what to look for. If you’re still obsessed with the winners of the last bull market, you’re going to miss the boat. And if you’re sticking your head in the sand because of all the bad news, you’re also going to miss out.
Instead, investors should spend some time today gradually selling out of their broken stocks (hopefully during rallies), and study up on how the market actually works. History repeats itself, and just as the devastating 2000-2002 bear market (when the Nasdaq fell more than 80%) led to a big new upmove, this one will do the same.