BULLS & BEARS: My past predictions were not all hot air

February 5, 2007

One benefit of writing a column is, the reader rarely remembers for long what the writer says.

Maybe readers don't remember what stock market columnists prognosticate because they think we're windbags and change our opinions willy-nilly.

For example, a month ago, I wrote the market was looking like it might pull back 10 percent and two weeks later wrote about the case for a market "melt-up."

Willy-nilly? I don't think so, because both events could happen.

But a year from now, unless I remind you, you probably won't remember what I said, anyway.

This week, I thought I would take a walk down memory lane and see if any of my past columns offered any profitable ideas or just hot air. In July 2004, the Dow Jones Industrials were at 9,000, and the Fed started raising interest rates.

The headlines of the day read, "Stocks drop on interest rate fears" because conventional wisdom held that if rates rose, stocks would drop.

I explained that there were 11 times in the last 50 years when both interest rates and stocks went up simultaneously.

At the end of the column, I wrote, "If we could just match the lamest of past gains over a couple of years, it would drive the Dow north of 12,000."

Pssst-today, we are north of 12,000. In August 2004, I explained how, by using the "value ratio," an investor could judge the relative value and appreciation potential of a stock.

I compared four Indiana companies, and the one with the value ratio indicating it was the most overpriced with the least appreciation potential was Biomet Inc.

The stock with the best value ratio was Cummins Inc. Since August 2004, Biomet shares have dropped about 5 percent whereas Cummins' price has gained 80 percent.

Wow, 80 percent! I wish I had listened to my own advice.

In September 2004, I remarked how stocks had returned only single-digit gains in three of the past five years and that, "statistically, we are overdue for a doubledigit return."

Bingo. Over the next 12 months, stocks gained 12 percent.

A month later, I said, "Oils, metals, steel and construction stocks have been the place to be" and that since cyclical leadership historically lasts 18 months, it was time to sell the "cyclical kings" and buy growth.

Oops, hot air extraordinaire. In the following two years, oils went up 40 percent, builders 60 percent, and growth stocks were flat.

In December 2004, I explained how watching insider buying is often a good source of ideas.

Insiders sell for many reasons, but buy for only one; obviously, they think their company stock is too cheap.

In that column, I mentioned how David Simon had recently bought 50,000 shares of Simon Property Group Inc. at $53.70 per share. Since then, the stock has more than doubled.

My wife just looked over my shoulder and affirmed I am a windbag. But now and then, we all get lucky and figure out which way the wind is blowing.



Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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