Today is the last day of May.  In a normal stock market year (let’s define “normal” as a time when investors are neither euphoric nor ready to jump out windows on high floors in tall buildings), this is the time when equity investors begin to ponder what the following calendar year will bring.

Why so early?  No extremely compelling reason.  It’s just the way it typically works.  Equity markets are futures markets, after all.  And by this time participants will have already discounted much of what the current year is likely to bring and are asking “What’s next?”.

not normal everywhere, but definitely normal in the US

Conditions are by no means normal all around the world.  Europeans are scared out of their wits by the politics/economics of the EU.  Pacific Basin markets are keeping a close eye on China, while hoping the battering they’re taking from European selling will soon end.  In the US, in contrast, the economy is entering its fourth year of recovery.  Employment is stable-plus, compensation for regular employees (as opposed to CEOs, who always pay themselves well) is beginning to rise, and the housing market–a key source of wealth–is showing its first signs of life since 2007.  While daily price volatility may be high and the shrill noises from talking heads may be particularly bearish, I think 2012 is a normal year.

therefore, time for pondering 2013 to begin

(You may argue that pondering season has already started, and point to the 8% decline in the S&P since its intraday high on April 2nd as evidence.  I don’t interpret the data that way, but you may be right.  If so, you should be more bullish than I am, since you think Wall Street has been factoring bad news into prices for longer than I do.)

a few numbers

Let’s begin with a back-of-the-envelope (which is the best you’ll get from me) calculation.  According to Factset, Wall Street is estimating earnings of around $105 for 2012, up from $97 in 2011.

Let’s say S&P 500 eps will reach $110-$115 in 2013, which is roughly the consensus.

based on 2012 eps

If the market could trade at 14x earnings, a target for the S&P based on estimated earnings would be 1470.

The 1422 high of two months ago was about 3% below that, giving new money absolutely no motivation to buy stocks.  That also meant short-term traders had a reason to bet against a further rise.

Yesterday’s close was about 12% below 1470, suggesting the US stock market may be on more stable ground.

…and based on 2013 eps

The same calculation gives a target range of 1540-1610 for the S&P based on my guess about next year’s eps.  Potential appreciation from yesterday’s close would be +17% to +23%.

If you want to say that the US stock market continues to trade at the current multiple of 13x eps instead of 14x, then potential appreciation would be +9% to +14%.

In a world of 1.6%-yielding ten-year Treasuries, and 2.7% thirty-years, either case looks pretty good.

clouds on the horizon

I can see three, all of them the obvious ones:

1.  slowdown in China   For what it’s worth, as macroeconomics I think this is old news.  Policy is already beginning to move in a stimulative direction.  However, it will take some time for the new policy direction to take effect.  This probably means weaker prices for industrial commodities–and for commodity-dependent stocks–as well as for negative earnings surprises for firms whose profits are strongly linked to Chinese customers.  So China does have stock market implications.  But they’re stock selection ones rather than market-moving ones.

2.  ”fiscal cliff” in the US    On January 1, 2013, the temporary federal payroll tax cut is set to expire.  So, too, is the extension of Bush-era income tax reductions.  Large mandatory cuts in federal government spending, triggered by Washington’s failure to come up with an overall plan for deficit reduction, are supposed to happen as well.

This combination is enough to send the domestic economy beck into recession.

The consensus view is that after the election, the lame-duck Congress will do something to soften the blow.  My guess is the consensus will prove correct, although an accident is always possible.

3.  implosion in the EU    This is the main concern of global stock markets.

To recap:

–The crisis has been going on for almost three years.

–Worries have been discounted in waves of selling over that time, the worst of which (I think) have been the one currently in progress and the previous one last summer.

–The general parameters of a solution have been well-understood for a long time.

–I think Greece being in the EU or out is a big deal for that country but for no one else.

–The end game is unlikely to be a Japan-like fading of the EU into irrelevance, which would be bad for Europeans but ok for world equity markets.  Unaddressed, an outcome more like the 1996-98 crisis in smaller Asian markets is more probable.

timing?

Evidence to date to the contrary, I tend to think that the worst won’t happen.  I’d feel better about markets if I thought I were in the minority.  But if I were, I think global equity prices would easily be 10% lower than they are now.

If I’m correct, the main imponderable is the timing of a solution.  What little I know (or think I know) about politics says that when resolving a difficult issue involves sacrifice, the problem must be seen as so bad that solving it–no matter what the cost–can be presented to voters as a victory.

Are we at that point yet with the EU?  I don’t know.  Martin Wolf, chief economist with the Financial Times, has a good summary of the state of play.

Were the EU to show it finally has the resolve needed to adequately address its financial woes, however, I’m confident that the higher S&P targets for 2013 mentioned above would quickly become Wall Street’s game plan.  And a mini-version of last year’s autumn rally would likely occur.

In the meantime, markets will likely drift.

FB has two classes of common stock, A shares and B shares.  The two are identical, except for:

1.  A shares, which are the kind being sold in the public offering, have one vote each on matters of corporate policy

B shares, which are held by Mark Zuckerberg and other insiders, and which can’t be sold, have ten each.  This way insiders continue to control the company while raising money from outsiders.

2.  B shares are freely exchangeable into As, giving holders of the Bs a way to turn their holdings into cash.  But when insiders sell they don’t give “extra” votes to the buyer.

Any investor in internet companies–from Google to LinkedIn–is familiar with this structure.  It has been around a lot longer than that, though.  Hershey has a similar structure, for example, as do the New York Times and News Corp.

the offering

FB plans to sell 337, 415,352 shares in the offering.

Of that, 180 million will be new shares issued by the company.  The rest will come from employees cashing in stock grants they received as part of their compensation, and from venture capital investors cashing in stock they bought in private financing transactions.

Assuming the stock is sold at the mid-point of the announced pricing range of $28-$35 a share, the IPO will raise $10.6 billion and will imply that the entire company is worth just under $100 billion.

$5.6 billion of the proceeds will go to FB; the rest will go to selling shareholders–VCs and present/past employees.

overallotment

IPOs routinely line up commitments by sellers to provide an additional amount of stock for sale in the IPO if demand proves exceptionally strong.  In this case, FB has agreed to sell 6 million shares more, selling shareholders another 44.6 million.

why is FB going public?

In the Use of Proceeds section of the prospectus, FB says:  “…we do not currently have any specific uses of the net proceeds planned.”  The company also already has $3.9 billion of cash on the balance sheet.  So, why?  Two reasons:

–from Microsoft three decades ago, to Google, to Facebook and Linked In, tech companies have attracted highly talented workers despite relatively low salaries and the risky nature of any job with a startup.  In fact, prospective employees seek these companies out.  The financial motivation is the chance at a huge payout on stock options or restricted stock sold in a successful IPO.  The same holds true for venture capital investors.

So FB has an obligation–implied, or possibly specified in contracts with VCs–to have an IPO.

–ultimately the money will be spent on R&D, and to accelerate FB’s expansion to mobile devices and in markets outside North America.

expiring lockups

When they bought FB shares, venture capitalists may have agreed not to resell them until after the IPO.  Such agreements are called lockups. 

The selling shareholders have also made further lockup agreements with the underwriters not to sell more stock for specified periods after the IPO.

The clock starts ticking on them as soon as the IPO takes place.

–171.8 million shares become eligible for sale after 90 days

–another 137 million are freed up in the following three months

–another 235 million leave lockup in the six months after that.

The lockups mean holders can’t sell during the period the shares are restricted.  It doesn’t mean holders have to sell once the restrictions are lifted.

This is a glass-half-empty/glass-half-full sort of thing.  As long as the stock price is at least stable, history says few will feel rushed to sell once their lockup expires.

NASDAQ listing

Although Facebook picked a ticker symbol with two letters, something more closely associated with the NYSE (most NASDAQ stock symbols have four letters), it has chosen to list on NASDAQ.

One possible inducement for FB to choose NASDAQ–the exchange has just reduced the “seasoning” requirement for a new stock to enter the NASDAQ benchmark indices to a mere 90 days.  It seems to me that FB will become an index constituent as soon as possible.

This is important.  It means that every index mutual fund or ETF that tracks NASDAQ indices will be compelled to buy FB shares.  It also means that any active manager whose performance is measured using NASDAQ as a benchmark will have to think twice about “flipping” (immediately reselling) any shares garnered in the IPO.  In fact, if the manager takes a positive view on the stock, he may have to buy a lot more, in order to have a higher-than-benchmark weighting.

the IPO video

It’s part of the IPO roadshow.  Check it out.

More tomorrow.

One of the most creative (and successful) investors I’ve ever encountered–and, luckily for me, one of my earliest mentors–gave me this example of his investment style:

Suppose, he said, Washington has decided to stimulate the economy and we’re in the early days of a nationwide road building boom.  What stocks do you buy?

–Your first inclination is to look at construction companies.  That’s what most people buy.  But they’re usually conglomerates, with significant non-public works subsidiaries. There are also lots of them.   It’s difficult to predict who will get contracts and how profitable they will be.

–Your next thought is probably construction materials, like cement or asphalt.  Certainly, roadbuilding will require lots of that stuff.  But the same problem arises here, on a smaller scale–determining who, among many possible suppliers, gets the contracts and how important they are for the overall profits.  One extra quirk:  the low value-added nature of construction materials and their high weight (meaning big transportation costs) make individual plant locations crucial.  Figuring that out is especially hard.

My friend’s answer?  …cement trucks.  Buy stock in the one or two companies whose main business is making cement trucks.  No matter who gets the government construction contracts, no matter which suppliers they choose, they’ll need to transport cement to the construction sites.  As orders build, they’ll have to upgrade their truck fleets.  Large-scale contracts also mean large-scale upgrades.  That’s where the economic energy from the government road building program is going to be focused.

cascades of energy…

This is absolutely right, in my opinion.  It’s Levy Strauss selling blue jeans to Gold Rush miners all over again.

To recap, the surest and safest way to play any economic phenomenon is to find, if you can:

–the sole supplier

–of an essential component

–whose price makes up a very small cost in the creation of the ultimate end product made or sold.

This most likely means that buyers of the component will be much more concerned with the quality of the component than the price.  So the component maker should be able to make unusually high profits.

In my experience, I’ve found there’s also another–time-related– aspect to investor behavior in playing any powerful source of economic energy.

Institutional investors typically proceed as follows:

–initially they tend to buy largest-cap and most obvious ways to play whatever the theme is.  In the context of my friend’s road example above, they buy the general construction companies.

–after the prices of these stocks have gone up for a while, the big investors’ attention begins to move to the most obvious derivative plays–the cement companies–and buy them.

–ultimately they “discover” the cement truck companies and add them to their portfolios as well.

If you know the industries involved well enough, you can see a cascade of successive waves of investment that chronicles the travels of the consensus deeper and deeper into the derivative plays.

…forming a timeline

This changing, and ever narrowing, focus of big investors typically forms a timeline that we can use to judge how much energy remains in a given economic phenomenon in stock market terms.  Once the big guys work their way to the metaphorical cement trucks, that signals most of the money from the theme has already been made.

At this point, the market either goes back to the start of all the excitement–the general construction companies–and begins the cascade process all over again.  More commonly, the market moves on to other areas.

where are we now?

Although it’s relatively early in the 1Q12 earnings season, I’m struck by two characteristics of the market reaction to earnings announcements so far.

The first is that positive reaction is highly company-specific and relatively narrowly focused in the sense I’ve been writing about.  To me, this means that before long the market will no longer be following ever more indirect ways to play the fact of economic recovery from the Great Recession.  It will be looking for new areas of interest instead.

I’ve also noticed that my portfolio, which is more of the cement truck type–and which had been in the dumps for the past several months–is beginning to perk up again.  Yes, my stocks have had an extraordinary two years or so before starting to fade away, but that’s the past and not relevant for today.  I’m also reading my recent outperformance as evidence of an ongoing maturing–maybe even an upcoming sea change–in stock market focus.   More about this in my next Current Market Tactics, on Monday.

I was talking about the stock with my brother-in-law, a big AAPL booster, a month or so ago.  I’d been fooling around with one-year performance charts, an obvious indication that I somehow had too much time on my hands.  But doing so made me realize that, as I pointed out to my brother-in-law (who probably already knew), APPL had had an extraordinary impact on the S&P 500′s near-term performance.  Over the prior 12 months, AAPL was up around 80%.  Over the same time span, the S&P was up a bit less than 4%.   But AAPL alone was responsible for most of the 4%!!

Some rough arithmetic:  AAPL probably represented 3% of the index at the beginning of the period.  3% up 80% is the same as 80% up 3%, which is also the same as 100% up 2.4%.  In other words, AAPL’s gains represented 2.4 percentage points out of the 4 percentage point advance the index made during that year.  The other 97% of the index chipped in only 1.6 percentage points.  Those stocks were basically flat.

Index dominance by one stock never happens in the US.  In emerging markets, where a single issue can be 10%-15% of the overall market, yes.   ..in the US, no.  Nevertheless, that’s what AAPL did over the past year.

Then it fell by 10%.

more numbers

Let’s take a quick look at how AAPL has performed, even after that fall.  And let’s include some of the “AAPL eco-system” stocks as well, to see how they’ve made out.

one year (through yesterday)

AAPL          +77.2%

INTC           +43.8%

QCOM          +24.7%

NASDAQ index          +8.1%

S&P 500          +3.8%

ARMH          -4.8%

six months

AAPL          +37.5%

INTC          +20.9%

QCOM          +20.1%

S&P 500          +11.8%

NASDAQ          +8.1%

ARMH          -1.9%

year to date

AAPL          +43.1%

QCOM          +21.1%

INTC          +17.1%

NASDAQ          +14.7%

S&P          +8.9%

ARMH          +0.8%

what I make of this

1.   Even after the drop of the past few days, the overall situation of AAPL outperformance hasn’t changed very much.  What has happened over the past six months, though, is that the rest of the market has begun to revive.  So AAPL’s gains aren’t as dominant as they had been when the rest of the market was drooping.

2.  The performance of “eco-system” stocks has been spotty.

–Qualcomm, whose chips are in virtually every high-end mobile device, has done well.  But its performance over each of the periods above is a pale imitation of AAPL’s.

–ARM Holdings, whose low power chip designs are in just about every mobile device, high-end and low-, has been left behind in the dust.  Of course, it was trading at close to 100x earnings a year ago.

–Intel, the “anti-APPL,’ the “dinosaur” that ARMH was going to put out of its misery, has been second on the one-year list.  Or course, it was trading at 9x earnings a year ago and yielding close to 4%.

3.  A counter-trend movement, where AAPL goes down and the rest of the world catches up a bit, wouldn’t be the least bit unusual after a year+ like APPL has had.

the rumors

Over the past few days, perhaps only in response to the AAPL decline, I’ve seen three worries circulating about the company, namely:

–Phone companies in the US want to reduce iPhone subsidies.  (Who wouldn’t.  The carriers pay AAPL $600 or so for phones that they resell for $200.)  There’s talk that ATT and Verizon want to charge $230 instead.  It’s not clear that the carriers will be successful.  But if they are, higher prices might clip a couple of percentage points off the growth of AAPL’s most important business (half the company’s profits).  But if that means 22% growth instead of 25%, that’s not such a big deal.

–Mac sales may be slowing.  One analyst is reportedly suggesting that AAPL computer sales may have been down year on year in the March quarter.  That wouldn’t be good, either.  But, realistically, Macs are too small to matter that much to AAPL’s business.  And although tere are good industry data for slow-growth markets like the US and the EU, I don’t think there’s any good way to gauge Asian sales.

–iPad sales may be slowing.  This would be a more serious issue, since tablets are 20% of AAPL’s sales–and thought of as the company’s next hot product after smartphones.  I’m not sure what evidence there is, however.

my take

I’m reading the downward AAPL price move over the past week or so as a natural reaction by market participants with short time horizons–taking profits in a stock that has performed so well in both relative an absolute terms.  The really noteworthy thing is that the reaction took this long.

It’s possible that the worries I’ve seen surface in the past couple of days are justified, but my initial reaction is that the declines prompted the rumors–not the other way around. We’ll know for sure when AAPL reports earnings in a couple of weeks.

What impresses me most about AAPL is its valuation.  On consensus estimates, the stock is trading at under 14x fiscal 2012 earnings and yielding around 2.5%.  If those are anywhere near correct, there’s nothing “wrong” with AAPL other than that no stock goes up each and every day.

Current weakness may well be the trigger for AAPL holders to give their position sizes a sanity check.  That alone may prompt further selling as long-time holders give more thought to exactly how much AAPL they hold.

insurance as a hedge

Mr. Milevsky has had a life-long fascination with insurance.  So the book has comments on the role of insurance as a hedge against loss of a family breadwinner’s income.  There’s also a section on using annuities to stabilize retirement income flows.  There’s even a brief discussion of a precursor of the annuity, the tontine–an arrangement (devised by Lorenzo Tonti) where a number of elderly people invest money jointly and meet after a specified time to split the proceeds among the survivors–as one basis of the annuity’s appeal.

There’s also the usual academic nonsense about efficient securities markets, although that’s not crucial to the book’s message.

human capital

The most important aspect of the book, to my mind, is that it points out the crucial importance of considering one’s human capital when making a personal or family investment plan.  For almost everyone, a lifetime’s earnings from working will be their largest single source of economic wealth.  Yet people tend to take a very narrow approach when planning for diversifying their financial assets and ignore their human capital completely.  As a result, they overlook two important considerations:

1.  Are you, seen as your human capital, a stock or a bond?  That is, does your income have the potential to swing significantly from year to year and is your continuing employment highly contingent on continuing strong performance?   …or are you in a job where your future income is very predictable and where you’re highly unlikely to be forced out of work?

Entertainers, salesmen or money managers are like stocks;  tenured professors are the ultimate bonds.

People with very conservative preferences may be attracted to bond-like professions, and the less risk-averse to stock-like ones.  If each treats his allocation of financial assets as a completely separate topic from his choice of a career, then both will end up with incompletely diversified economic portfolios.  The professor will end up with too much bond exposure, the investment banker too much stock.

2.  How old are you?  Milevsky’s analysis here arrives at the conventional result.  A 22-year old college graduate has an immense economic resource in the present value of his future earning power.  So he can take a lot of risk with his financial assets.  For a retiree, on the other hand, the earnings gas tank is at empty.  So his financial asset allocation must be more conservative–both relative to his own past allocations and in an absolute sense.

(Are You a Stock or a Bond?:  Create Your Own Pension Plan for a Secure Financial Future, Moshe A. Milsvsky, PhD, FT Press, New Jersey, 2009)

That’s the cliché, anyway.  And, for what it may be worth, my experience is it’s true.  It’s much harder to stay ahead of a rising market than a falling one.

but why?

Let’s first get a technical, or maybe a definitional, point out of the way.

The world consists of growth investors and value investors–both, by the way, claiming to be in the minority (because that’s cooler than being run-of-the-mill).  Value investors stress defense.  They’re more risk averse.  As a result, they typically make their outperformance during the part of a market cycle when stocks are going down.  Of course, they’d like to outperform an uptrending market.  But because they put defense first, deep down they know they should be satisfied (even ecstatic) to keep pace in a rising market.  Their approach to the stock market, their longer term strategy, is to protect against possible downside.  So they know that not falling too far behind is the best they can realistically hope for. Let’s not count them.

So our question really is:  why is so hard for growth investors, whose strategy calls for them to make their outperformance in an up market, to do so?

I think a lot is due to the fact that a rising market attracts substantial amounts of new money to stocks.  Not only that, but the new money doesn’t come in all at once; it arrives at different times.  depending on timing, new money can create demand for many stocks, not necessarily those best positioned to benefit from the bull run.

For example:

– (Almost) every professional investor is taught from day one not to “chase” stocks that have already risen a lot before he starts to look at them.  Instead, he’s told, look for stocks that may not be quite as good but which haven’t moved yet.

Someone late to the smartphone party might not buy Apple or ARM Holdings.  He might buy Qualcomm instead.  Money arriving later still might gravitate toward a contract manufacturer like Hon Hai, or to Intel, or maybe even Verizon or Sprint, on the idea that smartphones or tablets will add oomph to those businesses.

These latter stocks may not necessarily be the purest plays or the greatest companies, but buyers will tell themselves (sometimes rightly, other times wrongly) that the risk/reward tradeoff is better for them than for the more expensive “pure play” stock like AAPL or ARMH.

Put another way, when the leading lights of an industry make a major move upward, they tend to drag a lot of the lesser lights along with them–at least to some degree, from time to time and with a lag.  It’s very hard psychologically–and arguably not the best idea financially–for someone who has identified a trend early and holds all the major players to rotate away from them and dip down into second-line stocks to play these ripples.  But during a period while others are playing catch-up by bidding up the minor stocks, the holder of industry leaders will underperform.

–There’s also a more general arbitrage in an up market–in any market, really, but more so when stocks are moving up.  It’s not only among relative valuations of participants in an industry which is on Wall Street’s center stage, but between that industry and other sectors/ industries/stocks.

Let’s say that tech stocks have gone up 40% in the past six months, while healthcare names have lost 5% of their value.  At some point, even tech investors will start to say that healthcare stocks look relatively cheap.  As this perception spreads, the market will direct its new money flows to healthcare.  Investors may even begin to rebalance–selling some of their tech stocks, and using the funds to buy healthcare, until a better relationship in valuation is restored.  While this is going on, anyone overweight tech and underweight healthcare will probably underperform.

should you want to outperform all the time?

If there were no tradeoffs, the answer would be easy.  But there are.

–All of us have different goals and objectives.  Younger investors, for instance, will probably want maximum growth of capital.  Older investors may want preservation of income, instead.  The former objective is consistent with trying to shoot the lights out in a bull market.  For the latter, that strategy is too risky.

-Not everyone has the temperament to be good at investing.  That’s just the way it is.  Someone who falls below the market return year in and year out should realize that for him active management is an expensive hobby.  Index funds would be a better wealth-building alternative.

–We also have different knowledge bases, aptitudes and interests.  That may make us better at defense than offense, or better at value investing than growth.  As in just about everything else, we should play to our strengths, not our weaknesses.

–Contrary to the wishes of the marketing departments of investment firms, no investor–not even the best professional–outperforms 100% of the time.  The other team eventually gets a turn at bat.  If you can outperform for two or three years out of five, and if your overall results match or exceed the market return for the half-decade, that’s more than enough.  That would put you deep in the top half of all professionals.

I don’t think this last is a crazy expectation for a non-professional.  Investing is a craft skill, like, say, baseball or shoe repair.  It can be learned.  Knowing a few things better than the market does will likely bring better than average long-term returns, even with occasional bouts of underperformance.

The current structure of our equity holdings exerts an influence on our investment thinking in a number of ways.  Most are normally invisible.  Usually it’s only when performance begins to get ugly that we turn a totally objective eye on what we own.

For one thing, there’s a powerful psychological tendency for our gaze to jump over positions that are losing us money (because we need to be right).  As a result, the dogs of the portfolio stay hidden longer than any of us would like to admit.  That’s why regular performance attribution analysis is so important.  (I’m not saying that we should jettison a holding if it doesn’t live up to our expectations right away.  We should give those expectations a sanity check, though, if the stock takes a nose-dive shortly after day one.)

For another, in a taxable account, we all are tempted to let the IRS tail wag the dog.  That is to say, we all weigh, at least semi-legitimately, the capital gains tax due on profitable holdings as a cost of making any change.  Because the tax is a concrete here-and-now expense, as opposed to the maybe-it-will-happen, maybe-it-won’t potential of future capital gains, it tends to have much more influence than it should in the decision to sell or not.

In a wider sense, there’s always a certain inertia associated with any portfolio, even while it’s still meeting our general performance expectations.  It is our intellectual child, after all.  We’ve done a lot of work in bringing it into being.  We know that more trading and more portfolio turnover, however emotionally satisfying, are almost always associated with worse investment results.  So why rock the boat.

taking out a fresh piece of paper

Periodically, though, it’s useful to ask ourselves what we would buy if we were creating a new portfolio from scratch.

Try it.

Don’t work from a list of existing holdings.  Sit down instead with a blank piece of paper (or document or spreadsheet).   Use whatever research materials you have at hand–a copy of Value Line, a discount broker’s screening services, a list of S&P 500 sector weightings and major constituents.  Read the company annual reports and 10-Ks.  Figure out what a portfolio–built today–should look like.  While you’re doing this, don’t look at what you already own.

When you’re done, compare this list–names and weightings–with what you actually hold.

You may be surprised at the differences.

why write about this now?

When I was managing money for others, I’d do the “clean sheet” exercise every six months or so.  I asked the portfolio managers working for me to do the same.

As it turns out, I’m currently investing in an IRA a lump sum pension distribution I recently received.  I want the money to be in more mature, income oriented stocks than I’d normally be attracted to.  This is compelling me to create a new portfolio from scratch, one with somewhat different objectives than I’m used to.  Hence this post.

I decided to read through a three-month cycle of Value Line reports as a way of generating new ideas.  I’ve been looking at the safety rankings and historical data on dividends and earnings growth.

I’ve been surprised at how many potentially interesting stocks I’ve found.  (Some of the prose reports in VL are quite good;  in others, the main virtue seems to me to be that they have a specific word count rather than any information.  Be careful about the performance rankings:  as I read the aggregate data, they no longer have the predictive power they once did.)

What also strikes me is how few of the stocks I already hold I’m eager to put into the new account.  Part of this, I’m sure, is simply a difference in investment objectives.  But part may also be an indication that some of my holdings are beginning to show their age.