You Need to Be in the Game... to Win the Game

Things were looking especially bleak back on June 16th. We couldn't know it at the time, but that day proved to be the 2022 year-to-date low. I sensed extreme bargains and put out my Sweet Seventeen list of what looked like great buys based on prices that day. I also strongly suggested that people with Traditional IRAs do partial or full Roth IRA conversions to take advantage of the severley discounted market. Pre-payment of taxes at 2022's marginal rates is looking better all the time as Congress seems intent on taking even more of high earners' income in future years. Those who acted on that IRA advice will reap huge tax savings over the entirety of their remaining years and even those of their heirs. Price-to-earnings ratios were extremely low on these stocks based on their own historically normalized numbers. Yields on the dividend-paying names were appealing as well. Few media personalities were willing to call a bottom. Anyone recommending stocks back then cautioned that you needed to take a multi-year time horizon in order to feel safe that things would work out OK. Most pundits were vehemently warning people that rising inflation and a looming recession made buying, even at very low price points, a fool's game. Boy were they wrong. Here are the actual nominal returns on my list through Saturday August 6. P/Es are based on 2022 estimates. Returns shown do not include any dividends paid or earned since June 16. Sixteen of my 17 picks went up an average of 12.7%. Ten of the 17 stocks pay dividends. How have I done versus the broader market over the exact same time period? Pretty much the same. The more conservative DJIA gained only 9.36% since then. The S&P 500 provided an almost identical return. The more aggressive Nasdaq 100 ETF outshone the other major indices, rising by 18.55%. The key decision at the low was to either buy/hold stocks, sell them or simply stay in cash. Only the first of those three choices proved correct. When I look at large-cap stocks these days I'm seeing fewer great buys and many overpriced issues. For that reason I'm convinced that my Sweet Seventeen list will become much the best performer compared with all three major indices as time proceeds. None of the 17 stocks on my list are even remotely close to what I calculate as fair values over the coming 12 - 24 months. Some could easily double or better from their Aug. 6 quotes. Nobody can guarantee that we won't retest the lows once again, but I think that is extremely unlikely. If you didn't get in eight weeks ago what is it that will let you know it's safe to get back in the water? Momentum-oriented traders will only feel that way after even larger gains have passed them by. Value-oriented investors who missed the lows will be praying for one last pullback that will let them in at prices they could have had already. If they fail to buy now and stocks continue higher they'll need to admit defeat regarding market timing, paying even more. Readers who view CNBC every business day should notice that commentators almost never speak about what individual stocks are worth. They base buy/sell/hold decisions on macro-economic events, political situations or simply on speculation about what the Federal Reserve Bank is likely to do next on interest rates. All the preceding factors, except for figuring out what stocks are really worth, are beyond your control. Why, then, let those things color your actions? Holding cash or fixed income at today's coupon rates is a guaranteed way to see true buying power erode over time. Take your shot at success by picking up shares you think are priced well below where they figure to be worth 6-12 or 24 months into the future. You've got to be in the game to win the game. Note: I will be traveling outside the U.S. until Aug. 21. My next scheduled article will be published on Tuesday, Aug. 22. I may send it a few thoughts between now and then if the mood strikes and my time and resources allow me to.

You Need to Be in the Game... to Win the Game

None of the stocks on my 'Sweet Seventeen' list of best ideas are even remotely close to what I calculate as fair values over the coming 12-24 months.

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