Archive for December, 2009

  • The 2010 Buy List
    , December 31st, 2009 at 8:40 pm

    Here’s my 2010 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and each position is worth $50,000. Here’s each stock, ticker, starting price and number of shares. This is what I’m referring to when I discuss how well the Buy List is doing.

    Company Ticker Price Shares
    AFLAC AFL $46.25 1,081.0811
    Baxter International BAX $58.68 852.0791
    Becton, Dickinson & Co. BDX $78.86 634.0350
    Bed Bath & Beyond BBBY $38.61 1,295.0013
    Eaton Vance EV $30.41 1,644.1960
    Eli Lilly LLY $35.71 1,400.1680
    Fiserv FISV $48.48 1,031.3531
    Gilead Sciences GILD $43.27 1,155.5350
    Intel INTC $20.40 2,450.9804
    Johnson & Johnson JNJ $64.41 776.2770
    Jos. A Bank Clothiers JOSB $42.19 1,185.1150
    Leucadia National LUK $23.79 2,101.7234
    Medtronic MDT $43.98 1,136.8804
    Moog MOG-A $29.23 1,710.5713
    Nicholas Financial NICK $6.89 7,256.8940
    Reynolds American RAI $52.97 943.9305
    SEI Investments SEIC $17.52 2,853.8813
    Stryker SYK $50.37 992.6544
    Sysco SYY $27.94 1,789.5490
    Wright Express WXS $31.86 1,569.3660

    Also as in previous years, I’ve only changed five stocks to the Buy List.
    The five stocks I’m taking out are Amphenol (APH), Cognizant Technology Solutions (CTSH), Donaldson (DCI), Danaher (DHR) and FactSet Research Systems (FDS).
    The five new stocks are Gilead Sciences (GILD), Intel (INTC), Johnson & Johnson (JNJ), Reynolds American (RAI) and Wright Express (WXS).
    The average stock on the Buy List is a bit larger than in previous years. The total market cap of the 20 stocks is $580 billion. The average dividend yield is 1.70% which is also higher than in previous years.
    Only six stocks have remained on for all five years; AFLAC (AFL), Bed, Bath & Beyond (BBBY), Fiserv (FISV), Medtronic (MDT), SEI Investments (SEIC) and Sysco (SYY).
    The list is now locked in and I can’t make any changes for the next 12 month. I’ll start tracking the new list on Monday, January 4, 2010.

  • The 2009 Buy List
    , December 31st, 2009 at 7:31 pm

    Trading for the year 2009 is now over. Overall, we had a very good year. The 20 stocks on the Crossing Wall Street Buy List were up an average of 43.97%. This beat the overall market by a good margin. For the year, the S&P 500 was up 23.45%.

    Including dividends, the Buy List was up 45.83% compared with 26.46% for the S&P 500. The Buy List’s dividend yield works out to 1.29% compared with 2.44% for the S&P 500. This was our best year by far and it was the third straight year that we’ve beaten the S&P 500.

    For the entire four-year history of the Buy List, we’ve made 14.93% compared with -2.68% for the S&P 500 (including dividends). Best of all, our annual turnover has been just 25% which means we change just five stocks a year. Our four-year “beta” is 0.9396.

    I’ll restate the Buy List rules. Each year, the Buy List consists of 20 stocks that I’m not allowed to change throughout the year. Once the list is set, it’s locked in place until the following December 31. I announce the change each year around the middle of December. Each year, I only have five new buys and sells. For tracking purposes, I assume the Buy List is equally weighted among the 20 positions in a hypothetical $1 million portfolio. You can check the performance of the Buy List anytime 24/7 at our Buy List page.

    My goal is to show investors that by choosing stocks wisely and sticking with high-quality stocks, you can beat the market—and that’s exactly what we’ve done. I try to beat the market by a few percentage points and to do it with less risk.

    For 2009, our daily volatility was slightly greater than the S&P 500 coming in at 4.44% more volatile. The last two years, we were less volatile than the market. For 2009, our beta was 0.9834.

    Eighteen of our 20 stocks closed higher for the year. Only Moog (MOG-A) and Eli Lilly (LLY) lost money. The big winner was Nicholas Financial (NICK) which gained 222% for us. NICK was our biggest loser in 2008 (I’m glad I stuck with it). Our other big winners were Cognizant Technology Solutions (CTSH) which gained 151% and Amphenol (APH) which gained 92%. I’m dropping both stocks for 2010.

    Just in case anyone doubts my math, this spreadsheet has all the numbers for the Buy List. There was (thankfully) only one accounting item this year when Nicholas Financial had a 10% stock dividend.


  • Kudlow on Dow 50,000
    , December 31st, 2009 at 11:38 am

    On CNBC, Arianna Huffington accused Larry Kudlow of predicting the Dow will hit 50,000. Kudlow denied the charge.
    Well, Arianna is right. Here’s Larry from October 1999.

    In “American Abundance”, which was published nearly two years ago, I predicted an over 50,000 Dow. Naturally, we all like to hang out with our friends. I believe my friends and I will be proven right.

    Again from August 1999:

    Think of the Internet as an economic freedom metaphor for our time. The Internet empowers ordinary people and disempowers government. The Internet creates wealth, expands growth, produces jobs and spreads prosperity. Standing behind the Net is the political power of well over 100 million investors and asset owners.
    Because of this, I believe the future economy will outperform all expectations. The stock market will head toward 15,000 in a few years, then 30,000, then 50,000 and higher. Believe it or not, the Internet is more important than the Fed.

    Larry’s prediction was that Dow 50K will come by 2020.

  • From 1999: Smart Money’s “Ten Stocks for the Next Decade”
    , December 30th, 2009 at 2:00 pm

    Not looking so good.
    Inktomi (INKT)
    Red Hat (RHAT)
    Scientific-Atlanta (SFA)
    America Online (AOL)
    Broadcom (BRCM)
    Nokia (NOK)
    Nortel Networks (NT)
    MCI WorldCom (WCOM)
    Monsanto (MON)
    Citigroup (C)

  • What the Steep Yield Curve Means for Stocks
    , December 30th, 2009 at 10:52 am

    Bespoke Investment Research notes the unusually steep yield curve. In fact, it’s close to the steepest curve on record. The only other time the curve was wider was in August 1982 when the stock market took off.
    A few years ago, I looked at the impact of the yield curve on stock prices. The effect is pretty dramatic. Over a 45-year period, all of the S&P 500’s capital gain took place when the the 10-year note was higher than the 3-month T-bill by 65 or more basis points. That’s about 70% of the time. For the other 30% of the time, the market was flat. Today, the spread is about 380 points.

  • This Is the Last Time I’ll Wear My Niners’ Jersey in Philly
    , December 29th, 2009 at 11:40 am

  • The 10 Interception Limit
    , December 28th, 2009 at 7:20 pm

    What is it about 11 interceptions? Since 1981, no defensive back has made it to 11 inceptions in one season even though 11 different players have made it to 10. Another 28 players have made it to nine, including three this year. You can add another 45 players who have made it to eight. Talk about thin tails, this data set seems to have no tail at all.

  • Tiger Woods Destroyed $12 Billion in Market Value
    , December 28th, 2009 at 2:51 pm

    If academics say it, then it must be true:

    More difficult to determine, though, is how the scandal would hit his corporate sponsors. So Victor Stango and Christopher Knittel, two economic professors at University of California, Davis, decided to take a stab at quantifyiung the effect–performing what is called an “event study.” To do this, the professors looked at the nine sponsors for which stock price data was available and compared stock returns for those companies for the 13 days after the accident, both to the entire stock market and a group of competitors. The market value of the sponsors fell 2.3%.
    The ones hit the hardest? The three sports-related companies–Gatorade (owned by PepsiCo), Nike and Electronic Arts. Those companies experienced a 4.3% decline in stock value. Meanwhile, consulting firm Accenture “experienced no ill effects.”
    Overall, the pace of the losses slowed by Dec. 11, the day Woods announced he would take a leave from golf, but as of Dec. 17, shareholders had not recovered their losses, according to the study.

  • The Perils of Economic Stats
    , December 28th, 2009 at 1:25 pm

    Coming on the heels of Robert Shiller’s idea for securities based on national GDP, consider the problem of constant revisions. GDP growth for the third quarter of 1983 has been revised ten times, including once this year.

  • CEO Pay Is Negatively Correlated to Share Performance
    , December 28th, 2009 at 10:48 am

    I can’t say this is much of a surprise:

    It turns out that the bigger the CEO’s slice of the pie, the lower the company’s future profitability and market valuation. “These CEOs,” says Prof. Bebchuk, “seem to be trying to grab more than they should.”
    Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years.
    Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million—but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO’s pocket takes $100 out of shareholders’ pockets.