Bob Brinker's Marketimer newsletter (P.O. Box 222, Irvington, NY 10533) has been the top stock-market timer among all the investment newsletters tracked by The Hulbert Financial Digest over the past decade. Brinker began building up cash in January and now holds a 65 percent cash position. Brinker believes a restrictive Federal Reserve monetary policy "virtually assures a contraction in the corporate earnings growth rate going forward. Compounding downside risk is the fact that this deceleration comes at a time of historically excessive valuation."
Geico's chief investment officer, Louis Simpson, is widely believed to be Warren Buffett's heir apparent. From 1979 through 1996, when Geico was taken over by Buffett's Berkshire Hathaway Corp., Simpson's Buffett-like value stock picks produced 22.8 percent average annual gains. Last year Simpson earned 17 percent, while Buffett barely broke even. Simpson recently owned just nine stocks: Dun & Bradstreet, First Data, Freddie Mac, GATX, Great Lakes Chemical, Jones Apparel, Nike, Shaw Communications, U.S. Bancorp.
Intensifying business competition has produced enormous increases in advertising spending. Meanwhile, deregulation has made the ad business less sensitive to economic trends. All this makes Invesco Leisure Fund's Mark Greenberg bullish on advertising stocks, especially those of agencies that will benefit from the increasing desire of multinational companies to consolidate their ads globally. Greenberg's two favorites: Omnicom Group, WPP Group.
Searching for stocks that could "easily weather any economic downturn," Standard & Poor's The Outlook (55 Water St., New York, NY 10041) recently uncovered nine with price-earnings ratios under 20-to-1, five-year average annual growth rates of at least 15 percent, more cash than long-term debt, and more assets than liabilities and long-term debt combined. The nine: American Management Systems, CIBER, Claire's Stores, Eaton Vance, Liz Claiborne, Plantronics, Pre-Paid Legal Services, Ross Stores, Zebra Technologies.
Several closed-end funds issue preferred stock whose dividends are taxed at a 20 percent rate, rather than at the higher rate on ordinary stock dividends, observes Business Week. "As a result, investors wind up with yields near 6 percent, after-tax. That's higher than the after-tax yield on higher-quality bonds. Six such preferred issues trade on the New York Stock Exchange: Gabelli Equity, Gabelli Global Multimedia, General American Investors, Tri-Continental and two issues from Royce Value."
Over the past decade, index funds have outperformed more than 85 percent of all actively managed mutual funds. One of the big reasons is low expenses. But not all index funds are cheap. Some charge as much as 1.5 percent annually just to assemble a basket of stocks mirroring a specific index. Here, according to Morningstar (225 W. Wacker Drive, Chicago, IL 60606) are five S&P 500 funds whose sub-0.2 percent annual expenses have resulted in significantly higher returns: Ssga S&P 500 Index, Vanguard 500 Index, USAA S&P 500 Index, Fidelity Spartan US Equity Index, Schwab S&P 500 Select.
"Gold: Darkest Before Dawn," a new 82-page Saloman Smith Barney study, suggests that gold has probably bottomed for five reasons: bearish investment sentiment, inflationary tremors, towering U.S. trade deficits, the feeble euro and broader stock market jitters.
Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.