Industry Rotation – Page 3

The Rules, Part XXXVIII

Posted on 23 May 2013 by David Merkel

There is probably money to be made in analyzing the foibles of money managers, to create new strategies by taking on the opposite of what they are doing.

What errors do most money managers make today?

Chasing performance
Over-diversification
Benchmarking / Hugging the index
Over-trading
Relying too heavily on earnings growth
Analyzing the income statement only
Refusing to analyze industries
Buy newsy companies
Relying on the sell-side
Trusting management too much

Let me handle these one-by-one:

Chasing performance

In writing this, I am not against using momentum.? I am against regret.? Don?t buy something after you have missed most of the move, as if future stock price movement is magically up.? Unless you can identify why the stock is underappreciated after a strong move up, don?t touch it.

Over-diversification

Most managers hold too many stocks.? There is no way that a team of individuals can follow so many stocks.? Indeed, I am tested with 36 holdings in my portfolio, which is mirrored for clients.? Leaving aside tax reasons, it would be far better to manage fewer companies with more concentrated positions.? You will make sharper judgments, and earn better returns.

Benchmarking / Hugging the index

It is far better to ignore the indexes and invest in what you think will yield the best returns over the next 3-5 years.? Aim for a large active share, differing from the benchmark index.? Make some real nonconsensus investments.???? Show real moxie; don?t be like the crowd.

Yes, it may bring in more assets if you are never in the fourth quartile, but is that doing your best for clients?? More volatility in search of better overall returns is what investors need.? If they can?t bear short-term volatility, they should not be invested in stocks.

Over-trading

We don?t make money when we trade.? We make money while we wait.? Ideas take time to work out, and there are frequently disappointments that will recover.? If you are turning over your portfolio at faster than a 50% rate, you are not giving your companies adequate time to grow, turn around, etc.? For me, I have rules in place to keep from over-trading.

Relying too heavily on earnings growth

Earnings growth is far less predictable than most imagine.? Companies with high profit margins tend to attract competitors, substitutes, etc.

When growth companies miss estimates, the reaction is severe.? For value companies, far less so.? Disappointments happen; your portfolio strategy should reflect that.

Analyzing the income statement only

Every earnings report comes four, not just one, major accounting statements, and a bevy of footnotes.? In many regulated industries, there are other financial statements and metrics filed with the government that further flesh out the business.? Often an earnings figure is less than the highest quality because accrual entries are overstated.

Also, a business may be more or less valuable than the earnings indicate because of the relative ability to convert the resources of the company to higher and better uses, or the relative amount to reinvest in capex to maintain the earnings stream.

Finally, companies that employ a lot of leverage to achieve their earnings will not do well when financing is not available on favorable terms during a recession.

Refusing to analyze industries

There are two ways to ignore industry effects.? One is to be totally top-down, and let your view of macroeconomics guide portfolio management decisions.? Macroeconomics rarely translates into useful portfolio decisions in the short run.? Even when you are right, it may take years for it to play out, as in the global financial crisis ? the firm I was with at the time was five years early on when they thought the crisis would happen, which was almost as good as being wrong, though they were able to see it through to the end and profit.

Then there is being purely ?bottoms up,? and not gaining the broader context of the industry.? As a young investor that was a fault of mine.? As a result, I fell into a wide variety of ?value traps? where I didn?t see that the company was ?cheap for a reason.?

Buying newsy companies

Often managers think they have to have an investable opinion on companies that are in the news frequently.? I think most of those companies are overanalyzed, and as such, don?t offer a lot of investment potential unless one thinks the news coverage is wrong.? I actually like owning companies that don?t attract a lot of attention.? Management teams do better when they are not distracted by the spotlight.

Relying on the sell-side for analysis

Analysts and portfolio managers need to build up their own industry knowledge to the point where they are able to independently articulate how an industry makes money.? What are the key drivers to watch?? What management teams seem to be building value the best?? This is too important to outsource.

Trusting management too much

I think there is a healthy balance to be had in talking with management.? Once you have a decent understanding of how an industry works, talking with management teams can help reveal who are at the top of the game, and who aren?t.? Who is honest, and who bluffs?? This very long set of articles of mine goes through the details.

You can do a document-driven approach, read the relevant SEC filings and industry periodicals, and not talk with management ever ? you might lose some advantage doing that, but you won?t be tricked by a slick-talking management team.? Trusting management implicitly is the big problem to avoid.? They are paid to speak favorably regarding their own firm.

Summary

This isn?t an exhaustive list.? I?m sure my readers can think of more foibles.? I can think of more, but I have to end somewhere.? My view is that one does best in investing when you can think like a businessman, and exclude many of the distractions that large money managers fall into.

The Rules, Part XXXVII

Posted on 21 May 2013 by David Merkel

The foolish do the best in a strong market

“The trend is your friend, until the bend at the end.”? So the saying goes for those that blindly follow momentum.? The same is true for some amateur investors that run concentrated portfolios, and happen to get it right for a while, until the cycle plays out and they didn’t have a second idea to jump to.

In a strong bull market, if you knew it was a strong bull market, you would want to take as much risk as you can, assuming you can escape the next bear market which is usually faster and more vicious.? (That post deserves updating.)

Here are four examples, two each from stocks and bonds:

In 1998-2000, tech and internet stocks were the only place to be.? Even my cousins invested in them and lost their shirts.? People looked at me as an idiot as I criticized the mania.? Buffett looked like a dope as well because he could not see how the enterprises could generate free cash reliably at any intermediate time span.
In 2003-2007, there were 3 places to be — owning homebuilders, owning depositary financials or shadow banks, and buying residential real estate directly.? This was not, “Buy what you know,” but “Buy what you assume.”
In 1994 many took Mexican credit risk through Cetes, Mexican short-term government debt.? A number of other clever investors thought they had “cracked the code” regarding residential mortgage prepayment, and using their models, invested in some of the most volatile mortgage securities, thinking that they had eliminated all risk, but gained a high yield.? Both trades went badly.? Mexico devalued the peso, and mortgage prepayments did not behave as expected, slowing down far more than anticipated, leading the most levered players to? blow up, and the least levered to suffer considerable losses.
2008 was not the only year that CDOs [Collateralized Debt Obligations] blew up.? There were earlier shocks around 2002, and the late ’90s.? Those buying them in 2008 and crying foul neglected the lessons of history.? The underlying collateral possessed no significant diversification.? Put a bunch of junk debt in a trust, and guess what?? When the credit cycle turns, most of those bonds will be under stress, and an above average amount will default, because the originators tend to pick the worst bonds with a rating class to maximize the yield, which allows the originator to make more.? Yes, they had a nice yield in a bull market, when every yield hog was scrambling, but in the bear market, alas, no downside protection.

I could go on about:

The go-go years of the ’60s or the ’20s
The various times the REIT market has crashed
The various times that technology stocks have wiped out
And more, like railroads in the late 1800s, or the money lost on aviation stocks, if you leave out Southwest, but you get the point, I hope.

People get beguiled by hot sectors in the stock market, and seemingly safe high yields that aren’t truly safe.? But recently, there has been some discussion of a possible “safety bubble.”? The typical idea is that investors are paying up too much for:

Dividend-paying stocks
Low-volatility stocks
Stable sectors as opposed to cyclical sectors.

A “safety bubble” sound like an oxymoron.? It is possible to have one?? Yes.? Is it likely?? No.? Are we in one now?? Gotta do more research; this would be a lot easier if I were back to being an institutional bond manager, and had a better sense of the bond market pulse.? But I’ll try to explain:

After 9/11/2001, institutional bond investors did a purge of many risky sectors of the bond market; there was a sense that the world had changed dramatically.? At my shop, we didn’t think there would be much change, and we had a monster of a life insurer sending us money, so we started the biggest down-in-credit trade that we ever did.? Within six months, yield starved investors were begging for bonds that we had picked up during the crisis.? They had overpaid for safety — they sold when yield spreads were wide, and bought when they were narrow.

But does this sort of thing translate to stocks?? Tenuously, but yes.? Almost any equity strategy can be overplayed, even the largest and most robust strategies like momentum, value, quality, and low volatility.? In August of 2007, we saw the wipeout of hedge funds playing with quantitative momentum and value strategies, particularly those that were levered.

Those with some knowledge of market? history may remember in the ’60s and ’70s, there was an affinity for dividends, with many companies borrowing to pay the dividend, and others neglecting necessary capital expenditure to pay the dividend.? When some of those companies ran out of tricks, they would cut or eliminate the dividend, and the stock would fall.? Now, earnings coverage of dividends and buybacks seems pretty good today, but watch out if one of the companies you own has a particularly high dividend.? You might even want to look at some of their revenue recognition and other accounting policies to see if the earnings are perhaps somewhat liberal.? You also compare the dividend to what the cash flow from operations is, less cash needed for maintenance capital expenditure.

I don’t know whether we are in a “safety bubble” now for stocks.? I do think there is a “yield craze” in bonds, and I think it will end badly when the credit cycle turns.? But with stocks, I would simply say look forward.? Analyze:

Margin of safety
Valuation, absolute & relative
Return on equity
Likely and worst case earnings growth

And then balance margin of safety versus where you have the best opportunities for compounding capital.? If relative valuations have tipped favorably to less common areas for stock investing that considers safety, then you might have to consider investing in industries that are not typically on the “safe list.”? Just don’t? compromise margin of safety in the process.

Industry Ranks May 2013

Posted on 5 May 2013 by David Merkel

My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, ?Where are trends under-discounted?? Price momentum tends to persist, but look for areas where it might be even better in the near term.

If you are a value player, look at the green zone, and ask where trends are over-discounted. Yes, things are bad, but are they all that bad? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

You might notice that this time, I have no industries from the red zone.? That is because the market is so high.? I only want to play in cold industries.? They won’t get so badly hit in a decline, and they might have some positive surprises.

If you use any of this, choose what you use off of your own trading style. If you trade frequently, stay in the red zone. Trading infrequently, play in the green zone ? don?t look for momentum, look for mean reversion.? I generally play in the green zone because I hold stocks for 3 years on average.

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

Huh? Why change if things are working well? I?m not saying to change if things are working well. I?m saying don?t change if things are working badly. Price momentum and mean-reversion are cyclical, and we tend to make changes at the worst possible moments, just before the pattern changes. Maximum pain drives changes for most people, which is why average investors don?t make much money.

Maximum pleasure when things are going right leaves investors fat, dumb, and happy ? no one thinks of changing then. This is why a disciplined approach that forces changes on a portfolio is useful, as I do 3-4 times a year. It forces me to be bloodless and sell stocks with less potential for those with more potential over the next 1-5 years.

I like some technology names here, some telecom related, some basic materials names, particularly those that are strongly capitalized.

I?m looking for undervalued industries. I?m not saying that there is always a bull market out there, and I will find it for you. But there are places that are relatively better, and I have done relatively well in finding them.

At present, I am trying to be defensive. I don?t have a lot of faith in the market as a whole, so I am biased toward the green zone, looking for mean-reversion, rather than momentum persisting. The red zone is pretty cyclical at present. I will be very happy hanging out in dull stocks for a while.

That said, some dull companies are fetching some pricey valuations these days, particularly those with above average dividends.? This is an overbought area of the market, and it is just a matter of time before the flight to relative safety reverses.

The Red Zone has a Lot of Financials; be wary of those.? I’m considering paring back my insurers.

What I find fascinating about the red momentum zone now, is that it is loaded with noncyclical companies. That said, it has been recently noted in a few places how cyclicals are trading at a discount to noncyclicals at present.

In the green zone, I picked most of the industries. If the companies are sufficiently well-capitalized, and the valuation is low, it can still be an rewarding place to do due diligence.

That said, it is tough when noncyclical companies are relatively expensive to cyclicals in a weak economy. Choose your poison: high valuations, or growth that may disappoint.

But what would the model suggest?

Ah, there I have something for you, and so long as Value Line does not object, I will provide that for you. I looked for companies in the industries listed, but in the top 3 of 5 safety categories, an with returns estimated over 18%/year over the next 3-5 years. The latter category does the value/growth tradeoff automatically. I don?t care if returns come from mean reversion or growth.

But anyway, as a bonus here are the names that are candidates for purchase given this screen. Remember, this is a launching pad for due diligence.

Full disclosure: Long APOL IM

Industry Ranks February 2013

Posted on 1 February 20131 February 2013 by David Merkel

If you are a value player, look at the green zone, and ask where trends are over-discounted. Yes, things are bad, but are they all that bad? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

I like some technology names here, some energy, some healthcare-related names, particularly those that are strongly capitalized. I?m not concerned about the healthcare bill; necessary services will be delivered, and healthcare companies will get paid.

I?m looking for undervalued and stable industries. I?m not saying that there is always a bull market out there, and I will find it for you. But there are places that are relatively better, and I have done relatively well in finding them.

That said, dull is hard to find these days. Where will demand remain strong, or where will demand rebound are tough questions.

The Red Zone has a Lot of Noncyclicals

What I find fascinating about the red momentum zone now, is that it is laden with noncyclical companies. That said, it has been recently noted in a few places how cyclicals are trading at a discount to noncyclicals at present.

So, as I considered the green and red zones, I chose areas that I thought would be interesting. In the red zone, I picked IT services and beverages. Stable industries.

In the green zone, I picked most of the industries. If the companies are sufficiently well-capitalized, and the valuation is low, it can still be an rewarding place to do due diligence.

That said, it is tough when noncyclical companies are relatively expensive to cyclicals in a weak economy. Choose your poison: high valuations, or growth that may disappoint.

But what would the model suggest?

Ah, there I have something for you, and so long as Value Line does not object, I will provide that for you. I looked for companies in the industries listed, but in the top 4 of 9 financial strength categories, an with returns estimated over 15%/year over the next 3-5 years. The latter category does the value/growth tradeoff automatically. I don?t care if returns come from mean reversion or growth.

But anyway, as a bonus here are the names that are candidates for purchase given this screen. Remember, this is a launching pad for due diligence.

Full disclosure: long SPLS, TOT, INTC, VOD

On Watchlists

Posted on 26 December 201226 December 2012 by David Merkel

Before I start this evening, a quick story:

One day in March, I got an e-mail from an older gentleman, and he said, “Hi, my name is XXXXXX.? Please call me.”? The name sounded familiar but I couldn’t place it.? So I called him, and he asked, “I own a decent amount of Berkshire Hathaway.? Can you explain to me why the value of the put options Buffett sold have risen from 3Q11 to 4Q11?”? After talking to him for a little bit, he said, “So you really don’t know.”? I replied, “Yes, I don’t really know, but give me a couple of hours, and I can give you a decent answer.”? So I told him I would give him an answer via e-mail, and follow with hardcopy.? As it was, we were both wrong, the value of the put options had fallen.

But then it hit me why the name was familiar — he was one of the Superinvestors of Graham-and-Doddsville.? You never know where you might go, or who you might meet just because you write some obscure blog.? Oh, yeah, you might just get to go to the US Treasury, and meet you-know-who. 😉

And now a question from a reader:

I?ve learned a lot from your blog. Thanks for the effort you put in to maintain it. (Today?s post was great? was just listening to my Intelligent Investor CD while driving last night and was thinking about how Graham talks about the need to be businesslike when investing).

I had a question about your investing process, specifically how you track stocks that look interesting to you.

For instance, I use value line and I flip through the pages on a daily basis, jotting down interesting tickers in a notebook. I then go to a few scans and watchlists, again jotting down tickers I?d like to research further. After that, I take my list of tickers and do some brief research to determine if they should go on my watchlist. This is where I need to change a few things. I use Morningstar to track my watchlists, which is great because it keeps track of all of the financial data automatically, but the problem is that as my watchlist grows, I find certain cheap stocks on the list but I can?t recall why I put them there. There is no spot for notes on Morningstar?s watchlist, so I thought about using a google spreadsheet, but I really don?t want two different things to track.

Walter Schloss was famous for not owning a computer and simply flipping through value line. There must be a simpler way to track stocks that look interesting!

Just wondering if you could share any thoughts on how you track potential stocks and how you refine your watchlist if it starts to get too large. Thanks David.

I don’t have a permanent watchlist.? I generate ideas three ways:

1) I read a lot of articles.? When an idea sounds clever, I write it on a small piece of paper and set it in a pile to age.

2) I study industries more than companies, and look for strong companies in weak industries, and levered companies in industries that are likely to remain strong for awhile.? I use Value Line here, and screen for companies that might yield a 15%/year return, while being above average in terms of balance sheet strength.

3) I read through the 13Ds of a group of ~75 investors that I respect, and look at the companies that are large holdings relative to market cap that are still being acquired.

Then I take all of my ideas once per quarter, shortly after the 13Ds are filed, and compare them against existing portfolio holdings against a variety of valuation metrics, sentiment variables, and other factors.

I then rank all of the companies as a group, looking at where the middle company in my existing portfolio is.? Companies I don’t own that are above it are candidates for purchase.? Companies I own that are below the middle portfolio company are candidates for sale.

I then sit down and analyze, and pair off stocks to sell versus stocks to buy, unless there is some reason to increase or decrease the number of stocks in the portfolio, which is usually around 35.? Presently it is 34.? I? buy/sell 2-3 stocks per quarter.? That keeps things fresh, but allows me to hold companies for longer periods of time.? (My turnover is 25% of the open end mutual fund industry.)

After I make my series of buys and sells, I throw all my work away, and start accumulating data for the next quarter.

My sense is that it pays more to think of your portfolio versus candidates than to track candidates.

The main idea here is that we should always be improving the character/quality of the portfolio.? Trade things that are worse for things that are better.? Human beings can do that trade.? What is hard is for people to assemble the best stocks.? Getting a bunch of “pretty good” stocks can be done, and it does not mean they will outperform all the time.? Getting a portfolio of all of the best stocks is impossible.

So think economically — try to improve your portfolio regularly, regular incremental improvements yield a large economic improvement over a market cycle.? At least, that has been my experience. 🙂

Recent 13F filings

Posted on 24 November 201225 November 2012 by David Merkel

I make changes to my portfolio and those of my clients once a quarter, where I trade out of 2-4 of my ~35 companies, and buy a similar number of new companies.? I have detailed that in this article.

But one thing that I do differently now is where I source ideas.? There are three places:

Articles I read that seem to have good ideas.? I print them out and put them in a folder.
My industry studies.
Scanning the 13Fs of ~75 clever investors.? That’s the new part.

I’m not going to write a lot more commentary this evening.? I’m just going to give you a results dump.? I have already gone through my results and made changes to my clients’ portfolios, save for one stock that is a little illiquid, and will take some time to acquire.

As it is, I want to share the following data with you from my trolling through the 13F filings:

Number of investors adding a new stock:

CUSIP	New	Ticker	Name
026874784	6	AIG	AMERICAN INTL GROUP INC
25490A309	5	DTV	DIRECTV
38259P508	5	GOOG	GOOGLE INC.
50075N104	5	MDLZ	Mondelez International, Inc.
65334H102	5	NXY	NEXEN INC COMMON STOCK NPV
896945201	5	TRIP	TRIPADVISOR INC
37045V100	4	GM	GENERAL MTRS CO
399473107	4	GRPN	GROUPON INC
46625H100	4	JPM	JPMORGAN CHASE & CO
53071M880	4	LVNTA	LIBERTY VENTURES – SER A

Umm, Groupon, GM?? Interesting.

Number of investors adding to a stock position:

CUSIP	Increased	Ticker	Name
026874784	13	AIG	AMERICAN INTL GROUP INC
38259P508	12	GOOG	GOOGLE INC.
191216100	12	KO	COCA COLA COMPANY
37045V100	11	GM	GENERAL MTRS CO
24702R101	10	DELL	Dell Inc
742718109	9	PG	PROCTER & GAMBLE CO/THE
172967424	9	C	CITIGROUP INC
50075N104	8	MDLZ	Mondelez International, Inc.
65248E104	8	NWSA	NEWS CORP
741503403	8	PCLN	PRICELINE COM INC
037833100	8	AAPL	APPLE INC
896945201	7	TRIP	TRIPADVISOR INC
125509109	7	CI	CIGNA CORP
78463V107	7	GLD	SPDR GOLD TRUST
68389X105	7	ORCL	Oracle Corp

The companies most held by my group of investors:

CUSIP	Owned	Ticker	Name
38259P508	28	GOOG	GOOGLE INC.
037833100	21	AAPL	APPLE INC
594918104	20	MSFT	MICROSOFT CORP
68389X105	17	ORCL	Oracle Corp
026874784	15	AIG	AMERICAN INTL GROUP INC
172967424	15	C	CITIGROUP INC
478160104	15	JNJ	JOHNSON & JOHNSON
931142103	15	WMT	WAL-MART STORES INC
084670702	14	BRK.B	BERKSHIRE HATHAWAY INC-CL B
24702R101	13	DELL	Dell Inc
65248E104	13	NWSA	NEWS CORP
060505104	13	BAC	BANK OF AMERICA CORP
747525103	13	QCOM	QUALCOMM INC
084670108	13	BRK.A	BERKSHIRE HATHAWAY INC-CL A
191216100	12	KO	COCA COLA COMPANY
949746101	12	WFC	WELLS FARGO & CO NEW

Number of investors decreasing a stock position:

CUSIP	Decreased	Ticker	Name
38259P508	16	GOOG	GOOGLE INC.
594918104	15	MSFT	MICROSOFT CORP
037833100	13	AAPL	APPLE INC
931142103	12	WMT	WAL-MART STORES INC
68389X105	10	ORCL	Oracle Corp
17275R102	10	CSCO	CISCO SYS INC COM
902973304	10	USB	US BANCORP DEL
084670702	9	BRK.B	BERKSHIRE HATHAWAY INC-CL B
060505104	9	BAC	BANK OF AMERICA CORP
57636Q104	9	MA	Mastercard Inc – Class A
65248E104	8	NWSA	NEWS CORP
949746101	8	WFC	WELLS FARGO & CO NEW
254687106	8	DIS	DISNEY WALT CO
717081103	8	PFE	PFIZER INC
92826C839	8	V	Visa Inc-Class A Shares
931422109	8	WAG	WALGREEN CO

Number of investors selling a stock entirely:

CUSIP	Sold	Ticker	Name
25490A101	6	DTV	DIRECTV-CLASS A
594918104	4	MSFT	MICROSOFT CORP
931422109	4	WAG	WALGREEN CO
87612E106	4	TGT	TARGET CORP
032346108	4	AMLN	AMYLIN PHARMACEUTICALS INC
037833100	3	AAPL	APPLE INC
060505104	3	BAC	BANK OF AMERICA CORP
57636Q104	3	MA	Mastercard Inc – Class A
65248E104	3	NWSA	NEWS CORP
871503108	3	SYMC	SYMANTEC CORP
172967424	3	C	CITIGROUP INC
78463V107	3	GLD	SPDR GOLD TRUST
032511107	3	APC	ANADARKO PETROLEUM CORP
53217V109	3	LIFE	LIFE TECHNOLOGIES CORP.
855030102	3	SPLS	Staples Inc
053332102	3	AZO	AUTOZONE INC
086516101	3	BBY	Best Buy Company Inc
64110L106	3	NFLX	NETFLIX INC
844741108	3	LUV	Southwest Airlines Co
256677105	3	DG	DOLLAR GEN CORP NEW
91324P102	3	UNH	Unitedhealth Group Inc
30161N101	3	EXC	Exelon Corp
778296103	3	ROST	ROSS STORES INC
690742101	3	OC	OWENS CORNING NEW
46120E602	3	ISRG	INTUITIVE SURGICAL INC
726505100	3	PXP	Plains Exploration
88023U101	3	TPX	TEMPUR PEDIC INTL INC
382388106	3	GR	GOODRICH CORP
532791100	3	LNCR	LINCARE HOLDINGS INC.

As a percentage of market cap, new positions added:

CUSIP	New	Ticker	Name
G5784H106	NA	MANU	MANCHESTER UTD PLC NEW
64107N206	27.49%	UEPS	Net 1 UEPS Technologies Inc
06652K103	27.20%	BKU	BANKUNITED INC
86663B102	26.98%	SNBC	Sun Bancorp Inc
147154207	25.80%	CACB	Cascade Bancorp
584404107	25.36%	MEG	MEDIA GEN INC
09064Y307	23.66%	BIOF	BioFuel Energy Corp.
269279402	14.54%	XCO	EXCO RESOURCES
912318201	12.88%	UNG	UNITED STATES NATL GAS FUND
121220107	12.21%	BKW	BURGER KING WORLDWIDE INC
29788A104	10.06%	EOPN	E2open, Inc.
G0585R106	10.03%	AGO	Assured Guaranty Ltd.
25490A309	9.48%	DTV	DIRECTV
44047T109	8.94%	HZNP	HORIZON PHARMA INC
92343E102	8.74%	VRSN	VeriSign Inc.
57686G105	8.58%	MATX	Matson Inc
896945201	7.58%	TRIP	TRIPADVISOR INC
39530A104	7.53%	GRH	Greenhunter Energy Inc-Restric

Increases in positions as a percentage of market cap:

CUSIP	Increased	Ticker	Name
G5784H106	361.97%	MANU	MANCHESTER UTD PLC NEW
64107N206	27.49%	UEPS	Net 1 UEPS Technologies Inc
06652K103	27.20%	BKU	BANKUNITED INC
86663B102	26.98%	SNBC	Sun Bancorp Inc
147154207	25.80%	CACB	Cascade Bancorp
584404107	25.36%	MEG	MEDIA GEN INC
09064Y307	24.24%	BIOF	BioFuel Energy Corp.
912318201	15.09%	UNG	UNITED STATES NATL GAS FUND
269279402	14.54%	XCO	EXCO RESOURCES
121220107	12.21%	BKW	BURGER KING WORLDWIDE INC
53635B107	11.90%	LQDT	Liquidity Services, Inc.
29788A104	10.06%	EOPN	E2open, Inc.
G0585R106	10.03%	AGO	Assured Guaranty Ltd.
25490A309	9.48%	DTV	DIRECTV
896945201	9.21%	TRIP	TRIPADVISOR INC
779376102	9.21%	ROVI	ROVI CORP
44047T109	8.94%	HZNP	HORIZON PHARMA INC
92343E102	8.74%	VRSN	VeriSign Inc.
57686G105	8.58%	MATX	Matson Inc
760975102	7.60%	RIMM	RESEARCH IN MOTION LTD
39530A104	7.53%	GRH	Greenhunter Energy Inc-Restric
07556Q105	7.41%	BZH	Beazer Homes USA Inc
194014106	7.06%	CFX	Colfax Corporation

Decreases in positions as a percentage of market cap:

CUSIP	Decreased	Ticker	Name
147154207	-28.97%	CACB	Cascade Bancorp
98417P105	-27.68%	XIN	XINYUAN REAL ESTATE CO LTD
624756102	-27.02%	MLI	MUELLER INDS INC
06652K103	-26.06%	BKU	BANKUNITED INC
64107N206	-24.77%	UEPS	Net 1 UEPS Technologies Inc
86663B102	-21.46%	SNBC	Sun Bancorp Inc
83545G102	-18.35%	SAH	SONIC AUTOMOTIVE INC CL A
09064Y109	-15.81%	BIOF	BIOFUEL ENERGY CORP
014481105	-15.75%	ALEX	Alexander & Baldwin Inc
269279402	-13.78%	XCO	EXCO RESOURCES
007865108	-11.85%	ARO	Aeropostale Inc
205862402	-11.69%	CMVT	COMVERSE TECHNOLOGY INC
G0585R106	-10.38%	AGO	Assured Guaranty Ltd.
499183804	-10.21%	KNOL	KNOLOGY INC
25490A101	-9.29%	DTV	DIRECTV-CLASS A
74165N105	-8.79%	PRMW	PRIMO WTR CORP
760276105	-8.36%	RJET	REPUBLIC AWYS HLDGS INC
359360104	-8.22%	FFEX	FROZEN FOOD EXPRESS INDS INC
440441400	-8.16%	HRZCA	HORIZON TELCOM – CLASS A
647581107	-8.06%	EDU	NEW ORIENTAL ED & TECH GRP I
939640108	-7.94%	WPO	Washington Post
960908309	-7.67%	WPRT	WESTPORT INNOVATIONS INC
871206405	-7.48%	SCMR	SYCAMORE NETWORKS INC
863236105	-7.44%	STRA	STRAYER ED INC
918866104	-7.31%	VCI	VALASSIS COMMUNICATIONS INC
532791100	-7.07%	LNCR	LINCARE HOLDINGS INC.

Largest amount of stocks sold out in entire:

CUSIP	Sold	Ticker	Name
147154207	-28.97%	CACB	Cascade Bancorp
98417P105	-27.68%	XIN	XINYUAN REAL ESTATE CO LTD
624756102	-27.02%	MLI	MUELLER INDS INC
06652K103	-26.06%	BKU	BANKUNITED INC
64107N206	-24.77%	UEPS	Net 1 UEPS Technologies Inc
86663B102	-21.46%	SNBC	Sun Bancorp Inc
09064Y109	-15.81%	BIOF	BIOFUEL ENERGY CORP
014481105	-15.75%	ALEX	Alexander & Baldwin Inc
269279402	-13.78%	XCO	EXCO RESOURCES
007865108	-11.85%	ARO	Aeropostale Inc
205862402	-11.69%	CMVT	COMVERSE TECHNOLOGY INC
G0585R106	-10.38%	AGO	Assured Guaranty Ltd.
499183804	-10.21%	KNOL	KNOLOGY INC
25490A101	-9.29%	DTV	DIRECTV-CLASS A
74165N105	-8.79%	PRMW	PRIMO WTR CORP
760276105	-8.36%	RJET	REPUBLIC AWYS HLDGS INC
440441400	-8.16%	HRZCA	HORIZON TELCOM – CLASS A
939640108	-7.94%	WPO	Washington Post
871206405	-7.48%	SCMR	SYCAMORE NETWORKS INC
647581107	-7.47%	EDU	NEW ORIENTAL ED & TECH GRP I
863236105	-7.44%	STRA	STRAYER ED INC
918866104	-7.31%	VCI	VALASSIS COMMUNICATIONS INC
532791100	-7.07%	LNCR	LINCARE HOLDINGS INC.

Finally, a list of the largest companies held by my investors where there is still net buying going on:

G5784H106	NA	MANU	MANCHESTER UTD PLC NEW
313549404	94.11%	FDML	FEDERAL MOGUL CORP
451100101	92.72%	IEP	ICAHN ENTERPRISES LP
25388BAD6	51.94%	DRIV	DIGITAL RIV INC
09064Y307	40.95%	BIOF	BioFuel Energy Corp.
63934E108	33.61%	NAV	Navistar International Corp
708160106	31.98%	JCP	PENNEY J C INC
254423106	31.23%	DIN	DINEEQUITY INC
584404107	29.86%	MEG	MEDIA GEN INC
64107N206	27.49%	UEPS	Net 1 UEPS Technologies Inc
06652K103	27.20%	BKU	BANKUNITED INC
86663B102	26.98%	SNBC	Sun Bancorp Inc
76117W109	24.37%	RFP	Resolute Forest Products Inc
92552V100	23.72%	VSAT	VIASAT INC
896945201	23.44%	TRIP	TRIPADVISOR INC
L00849106	23.41%	AGRO	ADECOAGRO SA
549463AH0	22.73%	ALU	LUCENT TECHNOLOGIES INC
405217100	21.86%	HAIN	HAIN CELESTIAL GROUP INC
165167107	20.76%	CHK	CHESAPEAKE ENERGY CORP
615369105	20.32%	MCO	Moody’s
912318201	20.06%	UNG	UNITED STATES NATL GAS FUND
812139301	19.92%	ZZ	SEALY CORP
874054109	18.64%	TTWO	TAKE-TWO INTERACTIVE SOFTWAR
205363104	18.40%	CSC	COMPUTER SCIENCES CORP
92927K102	17.65%	WBC	WABCO HOLDINGS INC
459028106	17.54%	INTL	INTL FCStone Inc
92343E102	17.33%	VRSN	VeriSign Inc.
42983D104	17.30%	ONE	HIGHER ONE HLDGS INC
N7902X106	17.11%	ST	SENSATA TECHNOLOGIES HLDG BV
913837100	16.53%	USAP	UNIVERSAL STAINLESS & ALLOY
194014106	15.31%	CFX	Colfax Corporation
N93540107	15.30%	VPRT	VISTAPRINT N V
760975102	14.96%	RIMM	RESEARCH IN MOTION LTD
269279402	14.84%	XCO	EXCO RESOURCES
806037107	14.56%	SCSC	Scansource Inc
79377W108	14.37%	SKS	Saks Incorporated
M25082104	14.06%	CKSW	ClickSoftware Ltd.
151290889	13.89%	CX	CEMEX SAB-SPONS ADR PART CER
45166R204	13.86%	IDIX	IDENIX PHARMACEUTICALS INC
H84989104	13.58%	TEL	TE CONNECTIVITY LTD
064058100	13.57%	BK	BANK OF NEW YORK MELLON CORP
88033G100	13.46%	THC	TENET HEALTHCARE CORP
53635B107	12.86%	LQDT	Liquidity Services, Inc.
779376102	12.63%	ROVI	ROVI CORP
121220107	12.21%	BKW	BURGER KING WORLDWIDE INC
345838106	12.16%	FRX	Forest Labs
79546E104	12.09%	SBH	SALLY BEAUTY HLDGS INC
00724F101	11.91%	ADBE	ADOBE SYSTEMS INC
65248E104	11.82%	NWSA	NEWS CORP
421933102	11.64%	HMA	HEALTH MGMT ASSOC INC NEW
24702R101	11.59%	DELL	Dell Inc
31428X106	11.54%	FDX	FEDEX CORP
62944T105	11.29%	NVR	NVR INC
741503403	11.13%	PCLN	PRICELINE COM INC
512815101	10.95%	LAMR	LAMAR ADVERTISING CO
84264A102	10.87%	SSE	Southern Connecticut Bancorp
037604105	10.57%	APOL	Apollo Group Inc Cl A
90341W108	10.51%	LCC	US Airways Group Inc
150870103	10.28%	CE	CELANESE CORP-SERIES A
66988K102	10.24%	NCQ	NOVACOPPER INC
191216100	10.21%	KO	COCA COLA COMPANY
20854P109	10.09%	CNX	CONSOL ENERGY INC
14040H105	10.08%	COF	CAPITAL ONE FINANCIAL CORP
29788A104	10.06%	EOPN	E2open, Inc.
12504L109	10.02%	CBG	CBRE GROUP INC
489170100	9.97%	KMT	Kennametal Inc.
871503108	9.90%	SYMC	SYMANTEC CORP
G02602103	9.71%	DOX	AMDOCS LTD COMMON STOCK GBP.00
30226D106	9.59%	EXTR	EXTREME NETWORKS INC
25490A309	9.48%	DTV	DIRECTV
G27823106	9.16%	DLPH	Delphi Automotive PLC
774341101	9.09%	COL	Rockwell Collins Inc.
880779103	9.08%	TEX	TEREX CORP NEW
984332106	9.01%	YHOO	YAHOO! INC
44047T109	8.94%	HZNP	HORIZON PHARMA INC
45031U101	8.88%	SFI	ISTAR FINL INC
447011107	8.68%	HUN	HUNTSMAN CORP
66987E206	8.58%	NG	NOVAGOLD RES INC
57686G105	8.58%	MATX	Matson Inc
003881307	8.54%	ACTG	ACACIA RESH CORP
887317303	8.36%	TWX	TIME WARNER INC
53219L109	8.33%	LPNT	LIFEPOINT HOSPITALS INC
808513105	8.28%	SCHW	SCHWAB CHARLES CORP NEW
751212101	8.16%	RL	RALPH LAUREN CORP
812139400	8.15%	ZZ	Sealy Corp
370023103	7.92%	GGP	GENERAL GROWTH PPTYS INC NEW
171779309	7.86%	CIEN	Ciena Corp.
73172K104	7.73%	PLCM	Polycom Inc
774415103	7.72%	ROC	ROCKWOOD HLDGS INC
07556Q105	7.69%	BZH	Beazer Homes USA Inc
31620M106	7.65%	FIS	Fidelity National Information
39530A104	7.53%	GRH	Greenhunter Energy Inc-Restric
103304101	7.42%	BYD	BOYD GAMING CORP
257559203	7.42%	UFS	DOMTAR CORP
20451N101	7.41%	CMP	Compass Minerals
125581801	7.36%	CIT	CIT GROUP INC.
45666Q102	7.27%	INFA	INFORMATICA CORP
G3157S106	7.26%	ESV	ENSCO PLC
251893103	7.23%	DV	DeVry Inc.
256677105	7.14%	DG	DOLLAR GEN CORP NEW
Y2573F102	7.09%	FLEX	FLEXTRONICS INTL LTD
439734104	6.98%	HFBC	HopFed Bancorp Inc.
20564W105	6.97%	SCOR	COMSCORE INC
302130109	6.96%	EXPD	Expeditors Int’l Wash Inc
95082P105	6.95%	WCC	WESCO INTL INC (this can?t be right)
125509109	6.93%	CI	CIGNA CORP
192446102	6.86%	CTSH	COGNIZANT TECHNOLOGY SOLUTIO
588056101	6.75%	MERC	Mercer International Inc.
232820100	6.69%	CYT	CYTEC INDUSTRIES INC
591708102	6.68%	PCS	METROPCS COMMUNICATIONS INC
90384S303	6.50%	ULTA	ULTA SALON COSMETCS & FRAG I
868536103	6.46%	SVU	SUPERVALU INC
413160102	6.44%	HLIT	HARMONIC INC
204018105	6.39%	CPBC	Community Partners Bancorp
382550101	6.24%	GT	GOODYEAR TIRE &
265504100	6.18%	DNKN	DUNKIN BRANDS GROUP INC
432589109	6.12%	HSH	Hillshire Brands Co
918194101	6.08%	WOOF	VCA Antech Inc
024061103	5.90%	AXL	American Axle & Mfg Hldgs
233326107	5.86%	DST	D S T SYSTEMS INC
58501N101	5.84%	MDVN	MEDIVATION INC
867892101	5.75%	SHO	SUNSTONE HOTEL INVS INC N
143130102	5.72%	KMX	CARMAX INC
073302101	5.42%	BEAV	BE Aerospace, Inc.
026874784	5.34%	AIG	AMERICAN INTL GROUP INC
863667101	5.30%	SYK	Stryker Corp
05615F102	5.30%	BWC	BABCOCK & WILCOX CO NEW

That?s all for now.? Comments are welcomed below.

Full disclosure: long ORCL, WFC, SPLS, ESV, TEL

Industry Ranks November 2012

Posted on 7 November 20127 November 2012 by David Merkel

My main industry model is illustrated in the graphic.? Green industries are cold.? Red industries are hot.? If you like to play momentum, look at the red zone, and ask the question, ?Where are trends under-discounted??? Price momentum tends to persist, but look for areas where it might be even better in the near term.

If you are a value player, look at the green zone, and ask where trends are over-discounted.? Yes, things are bad, but are they all that bad?? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

If you use any of this, choose what you use off of your own trading style.? If you trade frequently, stay in the red zone.? Trading infrequently, play in the green zone ? don?t look for momentum, look for mean reversion.

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

Huh?? Why change if things are working well?? I?m not saying to change if things are working well.? I?m saying don?t change if things are working badly.? Price momentum and mean-reversion are cyclical, and we tend to make changes at the worst possible moments, just before the pattern changes.? Maximum pain drives changes for most people, which is why average investors don?t make much money.

Maximum pleasure when things are going right leaves investors fat, dumb, and happy ? no one thinks of changing then.? This is why a disciplined approach that forces changes on a portfolio is useful, as I do 3-4 times a year.? It forces me to be bloodless and sell stocks with less potential for those with more potential over the next 1-5 years.

I like some technology names here, some energy, some healthcare-related names, particularly those that are strongly capitalized.? I?m not concerned about the healthcare bill; necessary services will be delivered, and healthcare companies will get paid.

I?m looking for undervalued and stable industries.? I?m not saying that there is always a bull market out there, and I will find it for you.? But there are places that are relatively better, and I have done relatively well in finding them.

At present, I am trying to be defensive.? I don?t have a lot of faith in the market as a whole, so I am biased toward the green zone, looking for mean-reversion, rather than momentum persisting.? The red zone is pretty cyclical at present.? I will be very happy hanging out in dull stocks for a while.

That said, dull is hard to find these days.? Where will demand remain strong, or where will demand rebound are tough questions.

The Red Zone has a Lot of Noncyclicals

What I find fascinating about the red momentum zone now, is that it is laden with noncyclical companies.? That said, it has been recently noted in a few places how cyclicals are trading at a discount to noncyclicals at present.

So, as I considered the green and red zones, I chose areas that I thought would be interesting.? In the red zone, I picked IT services and beverages.? Stable industries.

In the green zone, I picked most of the industries.? If the companies are sufficiently well-capitalized, and the valuation is low, it can still be an rewarding place to do due diligence.

That said, it is tough when noncyclical companies are relatively expensive to cyclicals in a weak economy. Choose your poison: high valuations, or growth that may disappoint.

But what would the model suggest?

Ah, there I have something for you, and so long as Value Line does not object, I will provide that for you.? I looked for companies in the? industries listed, but in the top 4 of 9 financial strength categories, an with returns estimated over 15%/year over the next 3-5 years.? The latter category does the value/growth tradeoff automatically.? I don?t care if returns come from mean reversion or growth.

But anyway, as a bonus here are the names that are candidates for purchase given this screen.? Remember, this is a launching pad for due diligence.

Full disclosure: long for me and clients: HPQ, VLO, TOT, TEL, INTC, CSCO, VOD

Industry Ranks September 2012

Posted on 22 September 201222 September 2012 by David Merkel

If you are a value player, look at the green zone, and ask where trends are over-discounted.? Yes, things are bad, but are they all that bad?? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

That said, dull is hard to find these days.? Where will demand remain strong, or where will demand rebound are tough questions.

The Red Zone has a Lot of Noncyclicals

So, as I considered the green and red zones, I chose areas that I thought would be interesting.? In the red zone, I picked energy services, and very basic goods.

In the green zone, I picked more than half of the industries.? If the companies are sufficiently well-capitalized, and the valuation is low, it can still be an rewarding place to do due diligence.

That said, it is tough when noncyclical companies are relatively expensive to cyclicals in a weak economy. Choose your poison: high valuations, or growth that may disappoint.

But what would the model suggest?

But anyway, as a bonus here are the names that are candidates for purchase given this screen.? Remember, this is a launching pad for due diligence.

Full disclosure: long for me and clients: HPQ, INTC, CSCO, TEL

Industry Ranks August 2012

Posted on 11 August 201211 August 2012 by David Merkel

If you are a value player, look at the green zone, and ask where trends are over-discounted.? Yes, things are bad, but are they all that bad?? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

I like some technology names here, some energy some healthcare-related names, P&C Insurance and Reinsurance, particularly those that are strongly capitalized.? I?m not concerned about the healthcare bill; necessary services will be delivered, and healthcare companies will get paid.

A word on banks and REITs: the credit cycle has not been repealed, and there are still issues unresolved from the last cycle ? I am not interested there even at present levels.? The modest unwind currently happening in the credit markets, if it expands, would imply significant issues for banks and their ?regulators.?

That said, dull is hard to find these days.? Where will demand remain strong, or where will demand rebound are tough questions.

The Red Zone has a Lot of Cyclicals

What I find fascinating about the red momentum zone now, is that it is laden with cyclical companies.? That does not make sense in a confused market environment where the market has no been making any progress.

So, as I considered the green and red zones, I chose areas that I thought would be interesting.? In the red zone, I picked transportation names, energy services, telecommunication services, and wholesale foods.

Much as cyclicals are displayed in the red zone, it does not mean the red zone or cyclicals are a good place to be.? The is a lot of weakness not just in the US, but globally.? I am left hard: where is the economy growing where the culture is honest enough that I trust the statistics?

But what would the model suggest?

But anyway, as a bonus here are the names that are candidates for purchase given this screen.? Remember, this is a launching pad for due diligence.

Full disclosure: long for me and clients: HPQ, THG, ESV, KR, INTC, CSCO

New Highs, New Lows, Yield Greed

Posted on 12 July 201212 July 2012 by David Merkel

When I read this post by Ivan Hoff, I decided to look at the new high and new lows lists, which I never do now, but used to do regularly back in the days when I read a paper Wall Street Journal every day.? Now our philosophies for doing so differ.? He is looking for buy high, sell higher, and I am looking for misunderstood companies that are first safe, then cheap.

So after the close, I copied the new highs and new lows for the NYSE, NASDAQ, and Amex as a group.? There were 203 highs and 89 lows.

But then I noticed something funny: a large number (53) of the new highs came from preferred stock, hybrid debt, and bonds — yieldy stuff.? With the lows, there was some weird stuff, but 7 companies had rights and warrants, hitting new lows, and one new muni bond fund, NKGD, which was just noise.

Then I looked at the industries that they were in, mostly to separate out the ETPs and CEFs from everything else.? Here are the tables:

New Highs

	Values
Row Labels	Sum of mktcap	Count of ticker
0715 – Insurance (Property & Casualty)	205,242	2
0524 – Tobacco	97,162	2
0803 – Biotechnology & Drugs	62,010	8
0521 – Personal & Household Products	40,837	2
0963 – Retail (Specialty Non-Apparel)	38,396	1
1203 – Electric Utilities	20,944	7
0515 – Food Processing	17,571	1
0721 – Misc. Financial Services	15,158	57
0115 – Forestry & Wood Products	11,980	1
0727 – Regional Banks	6,434	22
0806 – Healthcare Facilities	5,358	3
1209 – Water Utilities	4,356	2
1106 – Airline	3,595	2
1206 – Natural Gas Utilities	3,363	2
0812 – Medical Equipment & Supplies	3,209	4
0957 – Retail (Grocery)	2,472	3
0951 – Retail (Department & Discount)	2,356	1
1018 – Computer Services	2,039	1
1024 – Electronic Instruments & Controls	1,790	1
0612 – Oil Well Services & Equipment	1,335	1
0730 – S&Ls/Savings Banks	1,290	9
0915 – Communications Services	1,007	2
1036 – Software & Programming	832	2
0718 – Investment Services	548	2
0209 – Construction – Supplies and Fixtures	494	2
0712 – Insurance (Miscellaneous)	347	1
0942 – Restaurants	333	1
0703 – Consumer Financial Services	322	2
1033 – Semiconductors	316	1
0421 – Furniture & Fixtures	120	1
0909 – Business Services	33	1
1003 – Communications Equipment	31	1
0133 – Paper & Paper Products	17	1
0912 – Casinos & Gaming	0	1
Grand Total	551,295	150

Exclude Misc Fin Svcs	536,137	93

New Lows

	Values
Row Labels	Sum of mktcap	Count of ticker
0118 – Gold & Silver	41,488	9
1036 – Software & Programming	16,268	7
1003 – Communications Equipment	14,856	7
0515 – Food Processing	12,732	2
1033 – Semiconductors	10,351	2
1109 – Misc. Transportation	8,131	1
0206 – Construction & Agricultural Machinery	5,849	1
0948 – Retail (Catalog & Mail Order)	5,451	1
0951 – Retail (Department & Discount)	4,837	1
0603 – Coal	4,479	2
0424 – Jewelry & Silverware	4,243	1
0103 – Chemical Manufacturing	3,933	3
0203 – Aerospace and Defense	2,995	1
1018 – Computer Services	2,851	3
0218 – Misc. Capital Goods	2,300	2
0924 – Personal Services	2,292	1
0927 – Printing & Publishing	2,043	1
0124 – Metal Mining	2,024	2
0721 – Misc. Financial Services	1,903	2
0215 – Construction Services	1,802	1
0939 – Rental & Leasing	1,760	1
0915 – Communications Services	1,616	1
0418 – Footwear	1,439	1
1024 – Electronic Instruments & Controls	1,384	2
0909 – Business Services	1,223	1
0812 – Medical Equipment & Supplies	1,077	5
0612 – Oil Well Services & Equipment	1,075	1
0918 – Hotels & Motels	937	1
0969 – Schools	836	1
0609 – Oil & Gas Operations	820	1
0933 – Real Estate Operations	731	1
0415 – Auto & Truck Parts	703	2
0127 – Misc. Fabricated Products	693	2
1021 – Computer Storage Devices	512	2
0966 – Retail (Technology)	418	1
0703 – Consumer Financial Services	195	1
0806 – Healthcare Facilities	64	1
0727 – Regional Banks	61	1
0803 – Biotechnology & Drugs	54	2
0930 – Printing Services	6	1
0942 – Restaurants	5	1
0421 – Furniture & Fixtures	4	1
Grand Total	166,437	81

Exclude Misc Fin Svcs	164,534	79

By the time you are done separating out the passive vehicles, because one is miscategorized in the new highs, you have for regular stocks 92 highs versus 79 lows.? The market cap spread favors the highs because of Berkshire Hathaway, Altria, Amgen, Target, Kimberly Clark, Reynolds American, and H.J. Heinz.? The only large company among the lows was Barrick Gold.

I should add that all of the ETPs and CEFs making new highs were all fixed income funds.? ALL!

Then I looked at the yields of the common stocks that were making new highs and new lows.? For new highs, 35 out of 92 (38%) have yields over 2%.? For new lows, 10 out of 79 (13%) have yields over 2%.

This is a market that is driven by yield and safety/non-cyclicality.? The new highs are predominantly in stable industries, and the new lows in cyclical industries.

I’ve said it before, but I’ll say it again, yield is not real.? It is a residual of a larger economic process.? If you own a bond, preferred stock, or common stock that pays dividends, your future well-being relies on the economic success of that company.? With stocks, that connection is direct, with bonds it means avoiding default.? Other securities face similar limits.? Yields cease to exist when companies fail; chasing yield as a main strategy will fail, because fund shareholders will give up during the hard times when capital gets marked down, and sell.

Though the portfolio that I manage for clients has an above average dividend yield, I do not look for dividend yields; I look for solid companies, and the dividend yields find me.? (Buybacks too.)? I do not reach for yield.? There are many investors that are reaching for yield in this environment, and I think they will eventually get burned.

So be wary over yield.? It may not pop for a year or two; it might pop tomorrow.? I identify risks, and risks typically don’t come with dates.? Just be wary.? When everyone is scrambling for yield, it is probably best to not aim for a yieldy portfolio.

PS — note all the banks and S&Ls on the new highs list, and they are almost all small firms.

Full Disclosure: long AMGN