The highest of highs followed by sudden gut-wrenching drops. Riding the stock market in 1996 is proving to be more suited to a hardened rodeo bronco rider than average investors.
Investment newsletter editors who remained in the saddle the past five years suggest you continue to hold the reins tightly, dig in your heels and keep on riding. Don't fret over whether economic data is too good or too bad or the next 100-point drop or gain.Prospects still look relatively bright, and abrupt market downturns should trigger buying opportunities, they believe.
"This is going to wind up a fairly decent year, with a 10 or 15 percent gain in the major market average that will allow us to have a nice 15 to 25 percent return in our portfolio selections," predicted Al Frank, editor of The Prudent Speculator, the top-performing newsletter over the past five years as ranked by The Hulbert Financial Digest.
Patience and awareness are the keys to Frank's strategy, for he tries to buy bargain stocks selling at one-half or less than what they're worth.
"I see any pullback of the Dow Jones industrial average as positive because, while it pulls the NASDAQ market down a bit, too, greater recognition of smaller companies and their growth rates will likely take place," added Jim Collins, editor of OTC Insight.
Furthermore, stock prices are generally volatile and weak the first half of an election year until final candidates are clearly identified, he noted.
"I don't have expertise in predicting where the economy is going, and few, if any, analysts are following potential turnaround companies I'm interested in," explained George Putnam, editor of the Turnaround Letter. Rather than worry about the Dow or the Federal Reserve, Putnam follows publicly traded bankruptcies, tracks Securities and Exchange Commission filings and calls companies.
"This will be a fair, if not exciting, year that has some economic growth and reasonably good corporate profits, with more of an emphasis on smaller companies," says Jim Oberweis, editor of the Oberweis Report, who is always 100 percent invested in the market.
The biggest mistake is falling in love with a company, Oberweis believes, for an investor should diversify risk through at least 20 different stock names.
Here, ranked by five-year total return of model portfolios by Hulbert, are the top newsletters and their picks:
- The Prudent Speculator ($175 annually), P.O. Box 1767, Santa Monica, CA 90406, up 76 percent in 1995. Five-year annualized return 34 percent.
Frank, who buys extensively on margin, holds 100 stocks in a model portfolio. Favorites: Read-Rite Corp., maker of recording heads for computer disk drives; retailer Cosmetic Centers; Dataram Corp., maker of computer memory products; Stone Container, paperboard packing manufacturer; and semiconductor stocks Kulicke & Soffa, Micron Technology and National Semiconductor.
- OTC Insight ($295), P.O. Box 5759, Walnut Creek, CA 94596, up 71 percent last year. Five-year annualized return 31 percent.
Focusing on the NASDAQ market, Collins puts 400 stocks through quantitative and fundamental screens to add 10 to 20 stocks to his monthly buy list. Picks: HealthSouth Rehabilitation, a health-care delivery network; U.S. Robotics, maker of computer modems; networking stocks Bay Networks, Cisco Systems and 3Com; Jones Medical Industries in health care; and Gartner Group in consulting.
- The Turnaround Letter ($195), Suite 801, 225 Friend St., Boston, MA 02114, up 25 percent last year. Five-year annualized return 30 percent.
Putnam believes in steadily investing at all times. Selections: Graham-Field Health, a medical products maker that will benefit from a new automated distribution facility; Air & Water Technologies, an environmental/engineering firm that should prosper from greater concern about water supplies; and Danskin, a maker of women's exercise clothing that's being rebuilt into an achiever.
- The Oberweis Report ($119), 1 Constitution Drive, Aurora, IL 60506, up 72 percent last year. Five-year annualized return 28 percent.
Using an eight-step process to study revenues, earnings and price, Oberweis selects 50 portfolio stocks. Choices: Logan's Roadhouse Inc., a restaurant chain; Percon, maker of bar-code reading equipment; ESC Medical Systems, medical device manufacturer; and ValuJet Airlines.