Current Thoughts

for 2005

 

The market is most dangerous when it looks best, But Profitable when it looks worst!

When you get a crash or severe downturn, always buy the #1 company with the best asset quality and sell the inferior companies and try and wash some of your gains with losses from these. This is the time to Make-over the portfolio, as usually, all companies in the same sector get hit in a downturn.

Always add new-money, in a crash, never sell !!

The average P/E for stocks the past 100 years + has been 14.4, so if we can buy at P/E's of 8 to13, and the Bank is growing profits by 15%+ every year, we are ahead of the field.

If you buy stocks, it is very likely that at some point shortly after your purchase, the portfolio value will drop below the price you paid for it.

However, since the long-term trend is up over minimum periods of 5,10, and 20 years, if you monitor stocks less frequently, the probability that your portfolio will show a loss, decreases, especially when you buy at P/E's of 8 -12 or less. Also, no more than 1.5 times book value.

Over the long-run, stocks simply have superior performance and with the new tax laws, trading does not make as much sense for the high-net worth individual. A disciplined investment strategy is almost always a winning strategy, especially when we can buy Banks trading at P/E 's of less than 12 with 15%-20% earnings growth, with strong management teams and strong asset quality.

Over a ten year period, stocks purchased with a P/E of less than 12 have returned 14%+ over a ten year period. This is good enough for us. With takeovers taking place almost every month in this sector, the chance for much higher returns is also possible, during certain periods.

Finally and again most important, do not invest in the market, if you have less than a 5 year time horizon, but 10 years+ is better.

Douglas Hughes
President
BankNewsletter.com
1-888-814-7575
Hughes Investment Management

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