Short on Value, long on opportunity?
By Peter Brimelow, CBS.MarketWatch.com
Last Update: 12:26 AM ET Feb. 28, 2003
NEW YORK (CBS.MW) -- The stock market may hang in the balance -- but if it turns down, there's always the short side.
HULBERT FINANCIAL DIGEST
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Mark Hulbert, of the Hulbert Financial Digest, noted in his Wednesday column that Dow Theory-oriented investment letters think a buy signal may be in the offing -- if the Dow Jones Industrial Average can get above 8,9831.68, in the view of Dow Theory Forecast's Richard Moroney.
Conversely, if the Dow slips below 7,286.27, Dow Theory Letters' Richard Russell would expect "substantially lower prices."
That's a narrow range either way -- 600 or so on the downside, 1,000 or so on the upside. Two or three week's work for this market. The stunning thing about Russell's famous buy signal at the end of the 1974 bear market was how quickly it happened -- like a flash of lightening in a particularly dark night.
Still, if the bear market continues, one editor will be happy: William Lyon of Short on Value. Since the beginning of the bear market in March of 2000, his portfolios have averaged an annualized 17.8 percent gain, according to the Hulbert Financial Digest. In dramatic contrast, of course, the Wilshire 5000 has a 17 percent annualized loss.
Problem: Short On Value was distinctly short on something during the bull market. From 1994, when the HFD began monitoring, it sustained an average annualized loss of 27.9 percent. The Wilshire 5000, in even more dramatic contrast, had a 21.8 percent annualized gain.
You could think of Short On Value as one of those caged canaries that coal miners used to carry with them -- if the canary died, there was a poisonous gas leak. If there was a bear market, Short On Value would catch it.
Of course, it's easier to be philosophical if you have cash -- and, by 2000, Short On Value's more credulous followers would have been, well, short on cash.
Nevertheless, I've always thought that short selling was a natural niche for investment newsletters. The investment banks who employ security analysts notoriously don't like dissing clients. Hedge funds aren't designed for small investors. Yet there's evidence the market is more inefficient, i.e. the opportunities are greater on the short side. The problem was the titanic strength of the late lamented bull market.
In case you're nervous about Short On Value, we checked to see if any of his current recommended short sales were in the least-favored categories of three services whose rating performances are judged respectable by Mark Hulbert: Value Line Investment Survey; Zacks Advisor; Standard & Poor's Outlook.
Only one was: Applied Materials.
These stocks were in disfavor by at least two of the four services:
Applied Materials (AMAT: news, chart, profile)
BJ's Wholesale (BJ: news, chart, profile)
Brooks PRI-Automation (BRKS: news, chart, profile)
Comerica (CMA: news, chart, profile)
Greater Atlantic & Pacific (GAP: news, chart, profile)
Kemet (KEM: news, chart, profile)
Bally Total Fitness (BFT: news, chart, profile)
DPL Inc. (DPL: news, chart, profile)
Duke Energy (DUK: news, chart, profile)
El Paso Corp. (EP: news, chart, profile)
Fleming Companies (FLM: news, chart, profile)
Invest Tech (ITG: news, chart, profile)
Interstate Bakeries (IBC: news, chart, profile)
Longs Drug Stores (LDG: news, chart, profile)
Silicon Storage Tech (SSTI: news, chart, profile)
Tech Data (TECD: news, chart, profile)
TXU Corp. (TXU: news, chart, profile)
GATX Corp. (GMT: news, chart, profile)
Sabre Holdings (TSG: news, chart, profile)
Texas Industries (TXI: news, chart, profile)
Owens-Illinois (OI: news, chart, profile)
Post Properties (PPS: news, chart, profile)
Reuters Group (RTRSY: news, chart, profile)
Robert Half (RHI: news, chart, profile)
Silicon Valley Bankshares (SIVB: news, chart, profile)
Tupperware (TUP: news, chart, profile)
United Rentals (URI: news, chart, profile)
York Intl. (YRK: news, chart, profile)
[Note: In my Feb. 20 column, I inadvertently used Coolcat Explosive Small Cap Growth Report's performance over the past three years (annualized gain of 10.1 percent) when I meant to cite his performance since the end of 1998. This, as editor Kevin Kennedy has been patiently reminding me, was a gain of 36.3 percent -- vs. a loss of 6.6 percent for the Wilshire.] |
