The St. Louis Blues' amazing victory in Game 7 of the Stanley Cup Finals vs. the Boston Bruins on Wednesday night should provide a number of lessons for investors.
The first, don't ever give up.
The Blues sported the NHL's worst record on Jan. 2, just about the halfway point of the NHL regular season. Instead of gutting the team through trades, Blues' management stayed the course and was rewarded with the team's first Cup in its 52-year history.
For investors, the lesson is clear. Hang on to names in out-of-favor industries, as long as they reward you with cash flow while you wait for sentiment to shift. The energy sector is a prime example. Oil companies, especially those in exploration and production, have been out of favor with institutions since the oil bust burst in the fourth quarter of 2014. Yet patient investing, opportunistic dip-buying and persistent reinvestment of dividends has allowed my firm to yield positive economic returns on stalwart buy-and-holds such as Evolution Petroleum (EPM) and integrated international player Exxon Mobil (XOM) . It took an attack on two tankers in the Strait of Hormuz today to arrest oil's recent slide, but my firm was buying energy names in the recent dip, not selling them. Don't give up.
Another lesson: Keep looking for hidden gems. Jordan Binnington, the Blues' rookie goaltender, capped the Cup run with a magnificent performance Wednesday night. He began the season on the bench. Not only was he a back-up, but he was actually playing for St. Louis' AHL affiliate in the hockey hotbed of San Antonio. Much can change in the course of a season.
A handful of tech names grab most of the headlines in the financial media, but there are undiscovered stocks that will produce alpha for your portfolio. In addition to the explorers and producers -- most of which are trading names -- other unloved groups are out there, as well. Mortgage real estate investment trusts (REITs) provide well-above market yields and a partial hedge against falling long-term interest rates (is anyone worried about raising interest rates these days?) and potential short-term rate declines triggered by the Fed. Annaly Capital Management (NLY) is a large-cap ($13 billion) safe-name in that space. Similarly, business development companies (BDC-RICs) offer safe yields and protection from an inverted yield curve. NEWTEK Business Services (NEWT) is my favorite in that space.
Lesson No. 3: Don't be afraid to make a change in management. With no disrespect to Mike Yeo, it was his replacement by Craig Berube, a grizzled veteran of 17 seasons as an NHL player, who spurred the Blues' championship run. Again, the Blues did not gut their roster at the trading deadline; management simply made the one change that mattered.
If you are paying someone to manage your money, please ask the following questions:
What is the yield curve? And how does it impact equity valuations? What is your fee structure, and how much do you charge for simple tasks, like stock trades? What is the real return (yield) on my portfolio and how can we increase that number? If your adviser hesitates for even one second in answering any of those questions, it's time to send her to the unemployment office. The "Trump Jump" in the markets has turned so many advisers into "experts," but it is those who can produce alpha in difficult markets that you should retain. If you wonder about any of these matters, I am always happy to respond to reader requests made via Real Money.
So, as the Blues' theme song, Laura Branigan's "Gloria," is pounding through my skull this morning, I am trying to block out that horrible tune and focus on growing my clients' wealth. You should have similar focus.