Nobody ever wants to buy when the market's terrible. Why? Because we are all conditioned to believe that terrible begets horrendous and horrendous begets doomsday.
Now, it's not like doomsday can't occur. We lived through doomsday once in 2007 to 2009. We saw the market lose more than half its value.
And it's not like I am a Pollyanna. I was willing to say on the Today show before it got really ugly back in 2008, some 40% above the bottom, that if anyone needed their money in the next five years they should sell their stocks. Fortunately, my late friend Mark Haines gave us the buy call at near the absolute bottom and I embraced it wholeheartedly as anyone would who knew Mark and how fabulous he truly was at the big turns in the market.
That said, I am cognizant that as Tolstoy told us about families, if I may analogize from Anna Karenina, all bull markets are alike but each unhappy bear market is unhappy in its own way. This one is different, too, so it requires a different game plan than the others.
First, we have to acknowledge that it is a bear market for many securities. There is a host of natural-resources bear markets and many tech bear markets and tons of international-company bear markets. That's this market's unhappy family and I am not going to suggest that you dip into that world.
I am sure there are bargains in that group. I am sure that we will look back at, for example, some of the oil companies and say, "Jeez, how did we miss that?" But some things have to be missed. Fortunately, there are enough solid choices away from the higher-yielding oils to start some positions that make sense here.
My No. 1 concern isn't instant profit, it's being able to put money to work buying stocks of companies that you like at your prices, the old Warren Buffett dictum. My No. 2 concern is that no one is good enough to pick the bottom in anything. There are people who claim they have, but most of them are charlatans, frauds and mountebanks, so I discount their value. My No. 3 concern is with people who do not have the time or the inclination to pick individual stocks.
So, let me start by noting that this is the time to buy a mutual fund or ETF with higher-yielding characteristics. Why those? Because when the smoke clears on this selloff, you will find that you bought stocks that throw off a lot of income vs. Treasuries. That's a terrific investment.
If you cannot identify such a fund, I am fine with an S&P 500 index fund.
It's all good provided you do not put all your money in at once. I think a quarter of it should be put to work if you have a lot of cash and then wait to see what the market gives you.
But for those who are interested in individual stocks, how about a diversified portfolio of stocks with some stable growth and dividends, some domestic security -- remember, it is a Chinese-derived selloff and then one hyper-growth stock of your choice. I think this kind of portfolio is superior to the mutual funds and ETFs because it takes into account the most able companies and skips the minerals and mining-related and oil stocks where dividends are in question.
Let me give you some samples. For stable growth, my first pick is General Mills (GIS). Here's a company that yields north of 3% -- very good vs. Treasuries -- that is refreshing its product line to eliminate artificial flavors. I applaud that and the turnaround that CEO Ken Powell is inspiring. You can sleep at night with this one. It's like a Xanax.
Next up, Pepsico (PEP). Here's one that captures the zeitgeist of the moment: a huge beneficiary of raw cost declines -- they don't hedge as well as the rising euro. Oh yeah, it's rising and rising quickly so you can take numbers up. Can you imagine that? It's declined so much that you get a 3% yield and that can grow because the dividend can be boosted not just because it might decline!
I am torn between Kimberly Clark (KMB) and Clorox (CLX), but the tie goes to the 3% dividend payer, so that means KMB. I like its commitment to shareholders and the rather endless need for Kleenex, even among those who are afflicted with the Asian flu like this market is.
Southern (SO) is a high-quality utility that has performed in sullen fashion of late but does yield close to 5%. It's been a good long-term bet when it trades at these levels, down 10% for the year. (Southern is part of TheStreet's Dividend Stock Advisor portfolio.)
Ventas (VTR) isn't on anyone's lips except those of us who like good, safe yields like the 5.4% that CEO Deb Cafaro gives you. Consistent and strong. Finally, let's round things out with Verizon (VZ), which is at a 52-week low and yield just shy of 5%. Keep in mind you are legging into these and if they get away from you, that's too bad. We have to take that risk.
Next up, we need some domestic security stocks, companies that are uniquely U.S.-based that just reported excellent numbers so we have as good a visibility as possible. I like Kroger (KR) because it is the best supermarket operator out there. I would have said CVS (CVS), but that stock jumped more than 10% from trough to peak today so you need to see that drugstore chain come down.
Nordstrom (JWN) literally just put up fabulous numbers, as did Home Depot (HD), so a department store and a do-it-yourself retailer levered to housing make sense to me. Why not a homebuilder? Because I think Home Depot fulfils that role, although Lennar (LEN) is a fave. Call me gun-shy, though, as Toll Brothers (TOL) reports tomorrow and it can be very conservative, so a better opportunity may await. Finally this commodity decline, which includes gasoline, reminds me that Darden (DRI) is the most levered restaurant chain to the multicommodity complex. High-riskers might be more inclined to buy Chipotle (CMG), though. (CVS is part of TheStreet's Trifecta Stocks portfolio.)
Finally, while I am a champion of truth, not hope, I think one highflier can hold up under scrutiny here. Netflix (NFLX) traded at one point below where it was before it reported that remarkable quarter and, because China's a big issue, you get lucky. They are not there yet. Or how about Google (GOOGL)? It seems as if people forgot the reorganization that better breaks out the venture capital portions of Google from the high-growth, high-profit parts. That's mouth-watering, especially given that Google's not even in China. And to think that we trusted the Chinese to get it right, but they insist on censorship. I wonder if they are censoring the financials of so many of the junk companies with stocks they try to prop up every night.
And then there is Apple (AAPL). I know I was sweating Apple out and sent an email to CEO Tim Cook to see if there was any way to find out if the worries about China are leading to a major decline in sales, as would befit a stock that had gone from $133 to the mid-$90s in pre-market trading. Cook sent me an email back that said the last couple of weeks have been very strong for iPhone sales. If they are strong now, who knows how much stronger they can be when the Chinese party gets serious and stops pumping up the stocks of gossamer companies and actually puts cash in the pockets of the Chinese. (Apple and Google are part of TheStreet's Action Alerts PLUS portfolio.)
So, there you have it, some growth with dividend, some domestic security and one highflier, although at 10x earnings, Apple's obviously not flying all that high. There's your list of what you should be buying into this weakness and, please, not all at once. If you do that, you will violate one of my cardinal rules: Respect the frailty of human decision making and adjust your behavior accordingly.