My two latest columns have generated two types of subscriber emails and phone calls: Those who ask, "Assuming you're right, what on earth do I do with my money?" and those who say, "You're crazy, the dividend-paying blue-chips are a great buy."
I politely but enthusiastically disagree with the second group and I wish them the best of luck in all endeavors. I really believe that the big blue-chips are egregiously overpriced and almost as dangerous right now as betting-slip stocks like Tesla (TSLA) and Netflix (NFLX).
To the first group, I suggest thinking like two of the best investors of all time. The first is Sir John Templeton, who advised going where others won't to outperform the market. Running with the herd and buying the same stocks as everyone else guarantees having the same results as everyone else. If your portfolio looks like the headline wrap on the financial news channel, you are likely running with the herd and unlikely to perform any differently from the vast majority of individual investors who regularly underperform the market and make far less money than they statistically should.
You have to see what everyone else is avoiding and enthusiastically buy stocks and sectors that most investors disdain. For example, the stock market hates the metals right now. Gold and silver are both down more than 20% over the past year and even copper is down 8%. I do not trade the metals and have no interest in doing so, but those who make a living digging shiny stuff out of the ground have seen the price of their business heavily discounted this year. I favor silver miners like Pan American Silver (PAAS), Hecla Mining (HL) and Coeur Mining (CDE), which all trade well below tangible book value. When silver stops going down, these stocks should recover. Sometime in the next decade, silver will start going up again and these stocks will soar.
Companies that extract oil and gas have also been ignored by the thundering Wall Street herd and many of these stocks trade at big discounts to the value of their assets. WPX Energy (WPX) and Swift Energy (SFY) are both trading well below tangible book value. The low price of natural gas weighs on revenue and profit for these companies but this will not always be the case. Eventually, with increased usage and even the export of natural gas, these stocks will see business conditions improve and the stocks should recover to several multiples of the current stock prices.
Community and small regional banks are not so much despised as they are ignored by most investors. These stocks are too small to attract significant institutional interest and too thinly traded for short-term investors to get involved. They do not make headlines until they are taken over by larger banks. In the aftermath of the credit and real estate bust, many of these names trade below tangible book value. Many will be taken over for a multiple, not a fraction, of book value and offer an incredibly favorable risk-reward profile to investors.
The other legendary investor we should all be listening to and learning from is the pig farmer, Mr. Womack. You may recall the story of how he would drive to town when the papers were full of financial doom and gloom and buy a package of stocks that paid dividends. When the tide reversed and the press indicated clear skies ahead he would drive back to town and sell his package of stock for large gains. In between, he would either hold cash or buy more pigs with his money. Cash is your friend in market environments like the current one, with valuations rising and the opportunity for asset-based value investors shrinking rapidly. Cash is both a hedge and firepower for the eventual drawdown in stock prices that will create opportunity and inventory. It may not earn much, but it will not lose anything either.
These are a few things to do with your money now, but new money is going to find a limited number of safe and cheap stocks to buy. Buy what you find and keep the rest in cash until there's a Womackian moment in the markets.