I was inspired this morning watching a business television interview.  A fund manager was suggesting that it’s probably a good idea to sell stocks and sit on some Treasury Bills or other cash equivalent.  Isn’t this exactly what I’ve said?  Yes, but I said it months ago.  Am I a genius?  Of course I’d like to think so (who wouldn’t) but if you followed the simple philosophy (maverick investing) outlined in my book making smart investment calls ahead of the pack is not difficult.  I spend some time in the book discussing why investors really shouldn’t rely on advice from television or the press.  Here’s a quote from A Maverick Investor’s Guidebook:

“There’s a huge difference between investing and entertainment.  I was regularly a guest on business television , and callers would ask my opinion about various stocks.  I began by being brutally honest, which I determined didn’t sit well with the caller.  The callers were a bit thick at times, and I eventually realized that if they asked my opinion about a particular stock, they probably just bought it.  My responses became more temperate as follows:

• Early days response if I didn’t like the stock: “I think the stock is too expensive and the company management incompetent.  Don’t own it!”  There would be an eerie silence from the caller afterwards.
• Later days response if I didn’t like the stock: “I’d prefer to buy this one much cheaper, so if you already own it, I’d sell it if it goes higher or wait for a correction before I’d buy more.”

My point is that it makes no sense to base your decisions on advice you get from the television or other media – it can be tainted or worse…..just bad advice. 

I’ve mentioned (I think) before that I don’t like predictions, but rather I am a believer in “anticipating” the inevitable based on thinking things through rationally and not emotionally.  Let’s recap some of what’s happened based on what I anticipated.  The US market had to be a better bet than Canada, although in general all stock markets were bound to digest the Japan-induced slowdown.  Commodities were in a bubble.  It was inevitable that oil, gold and metals bubble would burst.  I figure the following chart illustrates that commodity-oriented markets (Canada) were indeed at more risk than the US.

The resource biased Toronto Stock Market did suffer more than the U.S. stock market.  Not very comforting to retail investors, but large institutional (pensions, insurance companies) funds pay dearly to be able to at least suffer less in down markets.  This is consistent with my expectation that market strength is transferring to other sectors (non-commodity) of the US and global economy (see many previous blog postings).

Why?  Here’s what has occured in energy, gold and metals – big weightings in the Canadian market -which I anticipated as inevitable.

COMMODITIES BUBBLE DID BURST

I just heard (on TV) “Is this the end of the commodity cycle?”  A few weeks ago, the same commentators were asking “Is $200 oil just around the corner?”  Some adjustments in market psychology (and valuations) can be fast and furious.  After chatting with and listening to some of the brightest investment thinkers in the world this past week while I was in Edinburgh, Scotland (at the CFA Institute Conference) I am beginning to think we may be experiencing one of these rapid adjustments right now.  There is sufficient skepticism and anxiety about the global economy to convince me that the recovery still has legs.

Consider the fellow I heard on business television this morning.  He put up a chart to illustrate his bearish short term outlook – a stock chart of (in my opinion) the best managed gold company on the planet, Agnico-Eagle.

In February this stock was $74 ($85 late last year), and with a few brief rallies in between has fallen to $60 recently.  OUCH!  The fund manager on TV is now recommending (just a bit late eh?) selling this and going to cash.

In my opinion (worth about as much as you’re paying for it LOL), the cash I suggested you park away months ago might NOW be put to work.  Oil and some metals may still get downward pressure (there’s a tendency for panic selling to get overblown) but the ‘babies have been thrown out with the bath water.’  Buying a new (but modest) position in the best quality (still growing) names is probably smart – as those investors who are still stubbornly in denial lose confidence and continue selling, you might have some opportunities to average down.  Why not wait until prices bottom out?  You’ll miss it or forget altogether is why. 

As indicated in prior commentaries, it’s important to widen your perspective – look at later cycle industries and stocks – as the broader economy gradually recovers from the stumble caused by high energy costs and other input (costs) price bubbles, as well as Japan/Greece/Libya uncertainties.

I still agree with Jim Rogers – avoid bonds if you want to earn any more than the coupon.  If you have to sell them before they mature, you’ll definitely lose money.

Invest to Live, Live to Ride