In the past couple of months I have been attempting to hearken back to more of a longer-term mindset regarding stock selection and market musings, as opposed to amassing knowledge from 98 article click-throughs. As time has worn on, however, a sense of worry has emerged: Have I lost focus on the common-man analysis that had always set me apart from the silver spoon-fed folks? In order to regain that edge, I channeled the advice from my fifth-grade math teacher: "Keep it simple, stupid," or KISS.
KISS in Practice
First, individuals tend to complain about their year-end job reviews and meager pay raises. Well, this time around, that bellyaching will be met with a pay raise that barely offsets the expiration of the payroll-tax credit. These folks are likely to adjust to their personal-spending plans. The read: We'll see a challenging start to first-half 2013 consumer spending that isn't yet priced in to sell-side earnings estimates. I prefer to put more stock in real-life consequences triggering a wake-up call for Wall Street, and as I enter the new year I'll remain extremely selective on consumer stocks, whether they're "enticing" dividend paying staples or clothing purveyors.
Here's another simple dot-connect: With the closure of the government spending spigots, aka budget cuts, will come fewer workers and fewer widgets built for numerous sectors. Any meddling in Social Security's cost-of-living adjustments will bring financial hardship to people just skirting by on fixed incomes -- and elevated food prices don't help. So, in the spirit of KISS, does the iShares Dow Transportation Average (IYT) really deserve to be rising as quickly as it's been doing? Can we truthfully believe that FedEx (FDX) has an impending fiscal 2013 recovery story if Granny isn't ordering as many objects made from China, and sold on Amazon (AMZN), for little Johnny?
Finally, the post-recession world has been, without question, characterized by stimulus aiding large chunks of the business community in countless cases of high-margin sales. Now the dynamic is changing, regardless of whether President Obama is able to secure infrastructure spending that nobody sees on their local roads. This type of fundamental change places extra emphasis on managers to execute productivity initiatives. Quick -- when it comes to the companies in your portfolio, are you aware of the productivity plans they are working through? I'd guess not.
Looking at the market from a real-life perspective is of significant value. The above shout-outs funnel into a single conclusion that I've been harping on recently: A fiscal cliff deal won't be a magical elixir. It will represent the start of a corporate thinning of the herd wherein strong companies will get stronger, while the weak will either die or will get bought out cheaply.
Sometimes the simplistic of analysis is the best, especially when you're feeling very overwhelmed and confused on what the appropriate attack plan is for building and protecting your wealth.
Okay, that fatherly moment is done.
For the Short-Term-Minded
● The market remains quite susceptible to headline risk. This week, sessions that have sparked mega enthusiasm have lacked the attributes of a defining sustainable long-term rally.
● In fiscal-cliff rhetoric, there seems to have been a shift to the negative Wednesday. Either way, I am not constructive on adding risk to the portfolio.
● Ignore the "sell-the-news" banter when the fiscal deal is announced -- that'll be the smart money trying to keep you down in the dumps. In reality, the probability for a rally is in excess of 50%. Be prepared Thursday as you watch the tick-by-tick madness from afar. (Do the research now, have a firm understanding of fiscal cliff and be ready to strike like a cobra.)
● Go forth and conquer.