The third statistician yells, “WE GOT IT, WE GOT IT!”
After I called the bottom on my last post, I don’t want anyone to think that just because the US stock market is going to go up means that I think we at ICM or at any other investing institution has it easy until the next major economic collapse. The problem with the market is that Dow Jones Average and the S&P average are simply averages. Some companies do better than the average and some do worse.
As the research point-man for Intigril Capital Management, I try to determine how a given stock will react to a change in broader economic conditions. Will a given stock go up harder and faster than the market average or will it go down harder and faster than market average?
Let me give you an example. There is some talk amongst analysts that Warren Buffett should buy a homebuilder. Everyone says that a homebuilder is a great buy right now because the homebuilder stocks are so beaten down. However, I know that Warren Buffett will never buy a homebuilder stock.
Why?
Because Warren Buffett already owns Home Depot. Warren Buffet knows that if housing recovers - which it always has - Home Depot and Lowe’s are the only game in town. Lowe’s is actually a conglomerate of a lot of different businesses, so Buffett focused on the company which is associated only with home improvements and small scale construction.
So, if you expected oil to go down, should you buy oil refiners such as Sunoco, who make money when crude prices are cheap?
Well, it is probably not a BAD idea, but I’d rather look at companies which sell potato chips and energy bars at the gas stations with the cheaper gas prices.
Another suggestions is that while buying home builders isn’t a great idea, but eventually, you should be looking at timber companies. Those would likely respond positively to new home construction.
Jim Cramer made a grim, although very shrewd, stock pick back during the start of the Iraq War :
He didn’t buy a gun maker – he bought a company that made bullets.
Right now, everyone is talking about how the high prices of energy is going to make solar a viable source of energy. So, should you buy a company that makes solar cells?
Maybe. But I don’t know which solar company is better than another, but I know that semi-conductor manufacturers will profit regardless of which solar company does a better job (and also have positive forces from more people in the world using computers too!).
Remember, the man who made the most money from the California gold rush never tried even once to shift through dirt looking for gold.
His name was Levi. He just made good jeans.
-Mansij Hans, E.I.T.
Member, Intigril Capital Management
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