WFG Contrarian Strategy Differs From Most, But is Working in 2010

One of the smartest investment guys on the planet is David Rosenberg. I read his report every day. Like myself, he is a contrarian and is in the minority of strategists who believe the economy is not going to get better any time soon and could go "double dipping" (double dates were more fun!) The table below is his advice for investors. I shifted WFG portfolios in this direction over one year ago.
WFG Scorecard On The Above1) Check
2) Check
3) Check
4) Check
5) Double Check!
6) Double Check!
7) Check and moving towards Double Check!

INVESTING LESSON:
Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising, based upon the momentum of the herd vs. fundamental valuations.

Dividends Matter

Here are some interesting return numbers when looking at where to put your money:

Year to Date, the S&P 500 is up 0.94% excluding dividends but is up 2.42% including dividends.

Over a one-year time period, market fluctuations account for 80% of returns but over a five-year time horizon, dividend yield and growth account for almost 80% of returns.

Ned Davis Research produced the following return figures: Since December 31, 1929, $100 invested in S&P 500 price only index grew to $4,989. That same $100 invested in the S&P 500 total return index grew to $177,774!

Since 12/31/1929, 95.8% of returns in the S&P 500 are accounted for by dividends and their reinvestment into the index.

Moral of the story, Paid To Wait stocks should be a part of every investor's portfolio.

Opinion From John Hussman

The comments below are taken from John Hussman's most recent weekly market commentary. I agree with his opinion.

September 13, 2010
Impulse Response
John P. Hussman, Ph.D.
www.hussmanfunds.com

Overall then, we are facing the likelihood of a fresh near-term deterioration in U.S. economic activity, as part of a longer multi-year adjustment, which is typical post-credit crisis behavior. My impression is that Wall Street is eager to treat the present cycle as a "V-shaped" recovery. We see little evidence to support that view, and the best evidence we do observe is more consistent with a double-dip (if not a continuation of a single ongoing recession).

The most serious risk

Yet, even the near-term risks to employment and the economy are not the greatest risks that investors face. Rather, the most serious risk for investors here is the persistent and misguided eagerness of Wall Street to value long-term assets based on short-term earnings results. Investors have priced the S&P 500 in a manner that is far too dependent on the achievement and maintenance of profit margins about 50% above historical norms. This is a mistake. Profit margins normalize over time, and on the basis of normalized earnings, the S&P 500 is about 40% above robust historical valuation norms (and even further above valuation levels that have represented "generational" buying opportunities such as 1974 and 1982, when well-covered corporate dividend yields averaged about 6.7%, versus the current 2%).

Deleveraging Is By No Means Done

There has been about $1 trillion of debt deleveraging that has occurred in the U.S. household sector over the past two years and to normalize debt/asset and debt/income ratios, there is another $6 trillion to go, and it will likely last another five years, if the historical record is any indication.

When the consumer is paying down debt, there is less money being "spent" in the U.S. economy. In addition, baby boomers are still too heavily weighted in stocks, with not enough in bonds and will be shifting money out of stocks for years to come.

Despite all the advertisements to buy gold, the average investor has less than 1% of their net worth invested in gold. Despite the current price of gold, the secular theme is in place for gold to continue to perform well over the next decade.

INVESTING LESSON:
Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Has the Economy Turned the Corner or Just Turned Over?

It is fascinating to watch how emotions shift each week. Some view that the economy as turning some sort of corner. Keep in mind how equity markets behaved in the summer of 2000, the fall of 2007, the spring of 2008 and the fall of 2008 too — all huge head fakes.

The S&P 500 stood at 1,109 last Friday, 9/10/10.

The S&P 500 was also at 1,109 back on 4/1/88, over 12 years ago.
That is 12 years of nothing and the majority of talking heads believed/believe we were/are in a new bull market.

The S&P 500 was also at 1,109 back on 11/16/09, 10 months ago.
That is 10 months of nothing and the the majority of talking heads believed/believe we were/are in a new bull market.

Over this 10-month period, the S&P 500 has see-sawed above and below the 1,100 mark 15 times. Can you say roller coaster!

At what level would I be more bullish? Approximately 20% below 1,109 is a level I would consider to offer compelling value.

INVESTING WISDOM

“It is impossible to produce a superior return unless you do something different from the majority.”

Source: Legendary value investor, Sir John Templeton

"Paid to Wait" Analysis of Illinois Tool Works (ITW)

The following analysis of ITW is courtesy of Kelly Wright and the excellent research from his company, Investment Quality Trends.

Illinois Tool Works (ITW): Based in Glenview, Illinois, Illinois Tool Works is a multinational manufacturer of a diversified range of industrial products and equipment with approximately 840 operations in 57 countries. Illinois Tool Works reports in the following eight business segments: Transportation, Industrial Packaging, Food Equipment, Power Systems and
Electronics, Construction Products, Polymers and Fluids, Decorative Surfaces and All Others.

Over the past year, Illinois Tool Works has generated an 18.20% Return on Equity (ROE), which represents a 21% increase over the previous year. Additionally, the 10% profit margin is significantly higher than the 5.90% industry average.

Founded in 1912, ITW has paid an uninterrupted cash dividend since 1933 and has consistently increased the dividend for the last 47 consecutive years.

Investing Lesson
If you are going to invest in the stock market, why not get "Paid to Wait" for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!