Experts: 2011 to be better year for stocks
Part 1 of a 2-part story
If there was a crystal ball to ask what the New Year will bring to those who invest, perhaps we'd know precisely what money moves to make and risks to take. But who needs the accoutrements of a fortune teller when Palm Beach and its neighbors are home, part time or full time, to some of the nation's most-respected financial experts?
Earlier this month I spoke with three of the country's most prominent investment professionals who live in the neighborhood: David Dreman, Louis Navellier and Muriel Siebert. Each was asked about their 2011 outlook on a handful of topics from the stock market to investor concerns, whether we are in a recession or depression, interest rates and the bond market.
What follows is Part 1 of their responses. It focuses on stocks. But before reading their opinions, here's a little background on each.
Investing in stocks people think are boring
Dreman, a pioneer in "contrarian value investing," has written books about behavioral finance and is chairman and chief investment officer of Dreman Value Management LLC.
Even though his firm's investing approach is disciplined, he says, people like to invest in things that are hot.
"So, they will pay as much as 10 times, or even 100 times, as much for something they like."
One of the problems with that behavior is it can cause bubbles -- such as the Internet and dot.com bubbles of not so long ago.
"They pay up for the idea rather than the company. And very often, no matter how good the company is, (the stock's price) won't match their expectations," he says.
For example, at one point America Online stock had a high price to justify it using a simple earnings discount model, he said.
"You would have needed 18 billion subscribers or three times the population of the Earth."
Dreman said his firm invests in out-of-favor stocks with strong balance sheets and good growth records -- "the stocks that people think are boring."
Merger mania alive and well
Louis Navellier's reputation has been built around his 25 years as a growth manager. His firm, Navellier & Associates, is privately owned and based in Reno, Nev. His investment style for Blue Chip Growth, Emerging Growth, Quantum Growth and Global Growth portfolios is based on quantitative analysis. New to the roster is Vireo, a portfolio of exchange-traded funds managed with an eye toward defensive allocation.
Like Dreman, Navellier also is an author.
"Looking back on this year, 2010 is probably the best year for corporate earnings that I've seen in my lifetime," says Navellier, who in addition to picking stocks, writes and edits a number of newsletters including Marketmail, a free weekly e-mail newsletter.
He expects S&P earnings to be up more than 50 percent by year end, cap weighted. One reason is because approximately 40 percent of those earnings come from beyond U.S. borders.
"So companies got paid in Brazilian Real and Australian dollars and other currencies that often reaped a 10 to 15 percent currency windfall," he says.
Plus, because of the huge cash positions in many corporate coffers and their ability to borrow low-interest to buy back their own stock, the market would have gone up even without new money.
"The stock market would be going higher just on the aggressive stock buy-back activity," says Navellier.
As for mergers and acquisitions? "Merger mania has been alive and well since late August," he says.
Guests at the Chamber of Commerce Business and Professional Breakfast at The Breakers earlier this month got a glimpse of why Muriel Siebert has often been referred to as "The First Woman of Finance."
Siebert is founder, president and chief executive officer of Muriel Siebert & Co. As are Dreman and Navellier, she too is an author.
But she also has a list of "firsts" that include: The first woman member of the New York Stock Exchange, the first woman Superintendent of Banking for the state of New York and the first woman to have a personal finance day named in her honor. Because of her work to educate young people about money within the New Jersey school system, each year teachers there recognize Muriel Siebert Personal Financial Literacy Day.
Siebert's years on Wall Street, in business and government, have made her both an icon and approachable. Her speaking style is simple. And she intentionally avoids lofty language, even when subjects may be complicated. "Otherwise it would put everybody to sleep," she says.
"I've realized that when I'm addressing many audiences, these are Mr. and Mrs. Smiths. Some may have companies. Some may not. Some may have money. Some may not have money but they are all interested. And want something to think about."
Editor's Note: This is the first part in a two-part series on the market outlook for 2011.
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