Brenda Buttner was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Bob Olstein, president of the Olstein Funds.
Trading Pit
Buy and hold? It's almost gospel among investors. But, believe it or not, it was a money losing strategy for the last 2 years. The S&P 500 is home to the biggest and the most stable stocks. These are the kind of stocks you buy and hold. On Friday, the S&P 500 closed at 1,111. But exactly two years ago, the S&P 500 was a lot higher at 1,467. In fact if you invested $10,000 back then, it would be worth about $7,500 today. Yet there still are stocks that are higher in that time.
Bob's fund, the Olstein Financial Alert Fund, is way up over the last two years and he believes that the investing philosophy of buy and hold does not work at all. He added that there is just too much volatility in this market to buy and hold.
Gary B. is a trader and never uses the buy and hold strategy. He charted the Dow to demonstrate his point. On his chart, he showed that the Dow, which has 30 of the best stocks, is no higher today than it was exactly three years ago. The Chartman said that to be a successful trader, it isn't necessary to have a very complex formula or watch computer screens all day. He gave an example of using a method such as buying all Dow stocks when those stocks were down 20-30% from their 52-week high, and the selling them when it was up 10%.
Tobin said the buy and hold strategy can be used if you research a company and think that it will be a great company in 5 years. But, if for example, the price of the stock goes up 100% in a year, you must not get greedy and have the discipline to sell it.
Scott advised investors to pay attention to the stocks that they buy. He said it is important to set up parameters of when to sell. Risks are managed by having the discipline to sell when a stock climbs or falls to a certain level.
Pat added to Scott's point that buying and holding a stock is not buying and forgetting about it, and never looking at it again. Buy it and keep an eye on it is Pat's strategy. He added that if its fundamentals deteriorate, or if the stock becomes extremely expensive, sell it, whether you've owned it for a week or five years.
Stock X-Change
Tax Day is April 15th, so Bob, Tobin, and Scott each picked the best stock to buy with your tax return.
Tobin likes Kindred Healthcare (KIND) because it is going to increase in value. Bob and Scott also like the stock.
Scott chose Laboratory Corporation (LH) due to its strong fundamentals and uptrending chart. Bob and Tobin did not like the stock.
Bob selected TriQuint Semiconductor (TQNT) because he believes that the stock is undervalued. Tobin and Scott didn't agree with Bob on this stock.
Chartman
Golf's ultimate tournament, the Masters, inspired Gary B. and Pat to examine Nike (NKE) and Fortune Brands (FO). Nike is on everything that Masters champion, Tiger Woods wears and Fortune Brands makes the Titleist golf balls that were used by so many of the players in the tournament.
The duo first teed off on Nike. Gary B. likes the stock because it recently broke to a new high above $64, and has pulled back. He advises to buy it now, with a stop under its recent low near $55. But Pat was not as optimistic on Nike. He said that it is a mature company with modest growth, and that its sales could actually slow down!
Next, the two looked at Fortune Brands. Gary B. said its chart has been super strong, and has broke to a new high near $53. But he told investors to wait for it to pull back near $50 before buying. Pat is also mixed on the company. He said golf is only a fraction of Fortune Brands' business and what really drives the company are its liquor and home segments. He thinks that this is a good combination, because liquor is a fairly defensive area, while the home-products business is sensitive to interest rates and the economy. But Pat does not like the company's overall growth rate and the performance of its office products. He did say that the best thing about Fortune Brands is its liquor business, however, Diageo (DEO) is a better liquor company to buy right now.
Predictions
Gary B: Sun Microsystems (SUNW) shines! Doubles within year
Scott: GM (GM) motors along; up another 20% by year end
Pat: Yield to yield! Buy Kinder Morgan Energy (KMP)
Bob: Buy insurance companies like Chubb (CB) & Berkley (BER)
Tobin: Time right for Mortgage REITs! Buy Annaly (NLY)
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