The Day Ahead: To Fall in Love -- With Your Portfolio

 | May 28, 2013 | 8:30 AM EDT  | Comments
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Pseudo-rocker Bryan Adams once asked a thought-provoking question: "Have you ever really loved a woman?" But I have greater interest in whether you have ever really loved your stock portfolio. After this past holiday weekend, it would be a wise decision to strongly fall in love with the process of investing, and that doesn't mean ingesting recycled garbage and endless statistics that are utterly useless when it comes to the pursuit of vast riches.

According to some quick Internet research, falling in love is comparable to developing an addiction. Does that describe "investing" for you? If not, why is that? Shouldn't your portfolio be treated with care, attention to detail and consistency? There is a clear difference between the unloved stock portfolio and the loved -- and the daily, monthly, and annual returns that result.

An Unloved Stock Portfolio

For an unloved stock portfolio, holdings are justified with third-tier-type of information. The portfolio is reactionary in nature, instead of anticipatory -- something that, as in life, stands to bite you in the rear end.

One example of this kind of information: The 10-year U.S. Treasury yield rose 7 basis points last week. Quick, did you adjust the weightings of your interest-rate-sensitive stocks, which have probably already registered robust year-to-date gains?

Another third-rate tidbit: Google (GOOG) and Microsoft (MSFT) each now represent 4.6% of the Nasdaq.

Also, there were positive intraday reversals in the market Thursday and Friday -- into a long week, no less -- and supposedly that was an encouraging sign. Is it really, though? Perhaps, instead, it's a function of big market players getting caught off-guard by the resurfacing volatility. That, in turn, causes them to buy the dips, so as to not scare the public -- they are in fact preparing to sell, developing reasons that are only explained a month after the fact.

Here are two more nuggets: The short interest ratio is at an eight-month low, and the relative-strength index looks to have peaked around the second week in May.

A Loved Stock Portfolio

Now on the flip side is the loved stock portfolio. Below are the notes I took during the holiday weekend of things that are high on my research list. Developing a loved stock portfolio is organic -- a process rooted in an interest for the outside world and the messages that are emitted daily.

First, I have only recommended one supermarket stock in my career, and that stock is Whole Foods (WFM). That could be in the process of changing, given studies at the store level at Fairway (FWM) in the past month. My preliminary research on the company runs deeper than seeing a bunch of people carrying out zillions of bags, though that has been a positive.

Here are a few observations on Fairway:

• It develops a strong emotional connections with a brand that is usually the sole credible grocer in various cities

• It places an emphasis on fresh products (such as fish or coffee) that entail a service -- a boon to profit margins

• It has a unique selection of products that actually sell -- in other words, the merchandise is not just sitting on the shelves to make the store look cool

• Fairway's customer service is helpful. It's the kind where it's obvious the employee is also emotionally connected to the company's mission statement.

Turning to some observations in the retail space, I've been disturbed by the poor product quality at Ann Taylor (ANN) and Ann Taylor Loft. Prices are up and quality is down: a recipe for bottom line disaster longer-term. After all, Zara and H&M have kept their prices generally consistent on higher-quality merchandise.

In addition, Gap (GPS) subsidiary Banana Republic did not nail its spring and summer assortment. That could weigh on the still-favorable story at its parent company.

On the more positive end, Best Buy (BBY) has started to advertise its new Samsung experience shops on radio and television, and I consider that a solid move by the new Best Buy team to stand out and differentiate the company from those that are heavily in e-commerce. I expect more shop-in-shop announcements at Best Buy by year-end.

Finally, on Apple (AAPL) here's the bottom line: The company has gone silent, and all the while Samsung has intensified its marketing of a large-screen device that is just plain sexy to view and use. This basic thought continues to keep me on the sidelines with respect to Apple, pending a new device that is truly transformational.

As you can plainly see, I am in love -- with investing.

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