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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19275  
Subject: Does the bigger picture help to pick stocks? Date: 7/10/2013 10:15 AM
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First let me confess that an analysis such as the POD winning "Bigger Picture" is way over my head. Today I received is a similar analysis "Bad Omens" by GaveCal via John Mauldin's Outside the Box.

http://www.mauldineconomics.com/outsidethebox/bad-omens

But I always come away with the same question: "What is it to me, a small individual investor? How does it help pick stocks for my portfolio?"

I like to look at the bigger picture via long term charts of things that affect me, like stock market indexes. Here are the 40 year S&P-500 (broad market) and the NASDAQ (high-tech market) charts:

S&P-500: http://invest.kleinnet.com/bmw1/stats40/^GSPC.html
NASDAQ: http://invest.kleinnet.com/bmw1/stats40/^IXIC.html

and for good measure, the CBOE Interest Rate and the Treasury Yield 5

CBOE: http://invest.kleinnet.com/bmw1/stats40/^TNX.html
TY5: http://invest.kleinnet.com/bmw1/stats40/^FVX.html

Certain things jump out at you:

Long term the market returns 8 to 10.5% (nominal) with high tech returning a bit more than the broad market. About 30 of the 40 years have been relatively calm and the other 10 bubbles or busts. There were only about 8 (really) bad years for putting money in index funds (1995-2002).

In the bigger picture, market returns are inversely correlated to the cost of money.

None of the above helps in picking individual stocks, for that you have to study the individual companies and their stocks.

Some things don't change much: energy does better than NASDAQ

Chevron: http://invest.kleinnet.com/bmw1/stats40/CVX.html
Consolidate Edison: http://invest.kleinnet.com/bmw1/stats40/ED.html
EXXON: http://invest.kleinnet.com/bmw1/stats40/XOM.html

Entertainment and vices

Disney: http://invest.kleinnet.com/bmw1/stats40/DIS.html
Altria: http://invest.kleinnet.com/bmw1/stats40/MO.html

Food and shopping for the masses:

McNugget: http://invest.kleinnet.com/bmw1/stats40/MCD.html
Wal Mart: http://invest.kleinnet.com/bmw1/stats40/WMT.html

I've picked the lowest volatility candidates because they are the ones least likely to give grief in the short term.

Anyone with a lifetime record of 15% returns is considered a market genius. A lifetime of dollar cost averaging these stocks plus a few other stalwarts would produce a market beating result in a low risk portfolio. If I could start all over again this is what I would do. My chief detractor is going to say: "Duh, 20-20 hindsight" to which I reply "experience IS hindsight."

Denny Schlesinger
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