January 7, 2011

Stock picking requires analysis -- and really good timing

Is this a good investment?
Or is it not?
Delivering the "OBJ Market Wrap" stock report on WLOQ-FM every afternoon is my favorite part of my job. I love researching the stock market. I'm just geeky that way.

One day, a co-worker noticed it was almost time for me to call the report in to the radio station, and she said something like, "The markets spiralled downward today after some guy said some stupid thing..." I gather that's how she sees the market.

It's true that I often say things like "activity spiked after the Fed announced…" because honestly, sometimes after a Bernanke announcement the stock charts look like those of a patient in V-fib. James Paulsen, chief investment strategist for Wells Capital Management, gave the best description of the market when he told an Associated Press reporter, “There’s nothing down there to move it except rumor and innuendo.”

Over at The Wall Street Journal, Brett Arends offers an analysis of just how wrong stock pickers can be, and he also wrote a clever and contrarian view of "market timing" -- pointing out that "even though Wall Street overall ended the decade pretty much level (when you include dividends), average investors lost a bundle."

We do seem to have lost a decade. A broad index like the S&P 500 shows gains made in 2002-2007 have been wiped out. The S&P 500 is down 4.7 percent from January 2001. But for that same period, just to give one example, Lockheed Martin Corp. (NYSE: LMT)* is up 105.9 percent. And remember to include those dividends. LockMart shareholders have been paid consistently all that time, despite the recession. In fact, LockMart recently raised its quarterly dividend for the eighth year in a row.

Still, analyst evaluations of LockMart are mixed right now. Ned Davis Research has it at "buy," while MarketEdge says "hold," and Credit Suisse is "neutral." LockMart made SmarTrend's list of "Top 5 Companies in the Aerospace & Defense Industry With the Best Relative Performance," second only to Orbital Sciences, yet the group is still "bearish" on LockMart. A more recent item from Zacks notes concern about defense budget cuts.

I do understand where the criticism comes from. If you look at performance since the start of the recession, The S&P 500 is down 14.3 percent and LMT down 36.7 percent. But when you look at LMT's long-term performance -- including those dividends -- it seems like a convincing case for buying and holding. But the difference between those who "lost a bundle" on LMT and those who made a bundle is the difference between those who bought three years ago and those who bought ten years ago. The hardest part of investing -- other than picking what to buy -- is picking when to buy.

* I picked LMT because I follow it for the OBJ Market Wrap. LMT has a large facility here in Orlando, and is also a major player in the space program.

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