OPINION

Picking Bottoms Wasting Opportunities

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I got a few questions yesterday about this being the beginning of "The Correction."

I'm not sure, but the market tends to pullback from time to time. It's really nuts how many people use the potential for a pullback not to be invested in the stock market. Until the Dow recently hit new all-time highs most Americans thought it was down the last year, very few knew it was up more than 100% since the recession. Of course outside of those in 401K programs at work, a woefully small amount of people actually bought stocks during the stealth rally; now those same folks have one worry-The Correction.

Why? Some say they are going to jump into the market in a dip, a pullback, or The Correction. Honestly, folks?

Are you really going to pick the bottom?

Few things frustrate me more than would-be investors that feel that even though they've missed a rally with numerous entry points they'll pinpoint the next "bottom" on a pullback or The Correction.

Yeah right! If you could pick the bottom then you would be riding the wave right now not looking for an entry point. It's a copout not unlike all these bears running around dismissing the rally as being simply Fed-fueled so hopelessly doomed. This is a dangerous example of pride and ego because not only did people miss out big time but they will continue to miss out until the market falls completely apart. Then they will buy the market because it would be the right time although one has to wonder what kind of news could spark The Correction.

Here's the deal-most people, and I'm talking 99%, (including the so-called pros) have no clue how to invest in the market. While it's true at any given time any approach might work (I used to joke you could pick stocks that begin with "T" on Tuesdays and sell them on Thursday and that might work for two weeks, even two months, who knows, but it would be pure luck not an alphabet logarithm). During the great technology rally of the late 1990s people actually bragged about not even knowing what companies did but knowing the stock would move higher.

That's what happens in manias-the current rally is not a mania.

The volume is anemic, the skeptics abound everywhere and earnings back up valuations. That doesn't mean the market isn't going to pull back, but it does mean the massive collapse is highly unlikely to happen anytime soon. It also means you are fooling yourself about buying The Correction. In so many ways this is the wrong conversation to be having anyway.

You are probably looking at investing the wrong way in the first place.

You must know that while we are talking about the "market," the fact is I believe in owning great companies and that's a distinctively different thing altogether. The market encompasses all publicly traded companies, which means the winners and losers. We are looking for the winners. We all know the winners, by the way, because we make them winners. The masses dictate demand, which derives from a desire to own, use have a winning product or service.

Have you ever gone to a store, hotel, and business and said "wow, that place was great, I wish I owned it?" You aren't thinking the business is going to fail but that over time it will only get better and better and why you aren't lucky enough to be in on the action. Because it's not about luck! It's about finding these great companies and putting them together in a basket. Of course it's better to find these winners as they're emerging or reemerging. There is work on valuations and peer reviews but the basic concept is easy to understand.

Buy and Hold

Things have changed with the market from years ago when the average stock was held for three years. Booms and busts and high frequency trading has created volatility, and coupled with lingering fear and distrust have made buying and holding difficult. I must admit that I often send alerts to take profits sooner than I would if managing money in a hedge fund, but I also have to manage fickle personalities of people that think a bad quarter means IBM could go out of business. I'm only half-joking.

That's too bad because right now great American companies are looking at opportunities that have never been there in the past. The world is on fire ... and I'm not talking about the world that the news talks about because there is more to the planet than Europe, Japan, and America. They can't get enough Whirlpool washers and dryers in South America or American baby formula in China.

There are trends happening now that will be in place for the next ten to one hundred years.

While you're focused on not getting caught in the next 6% pullback or "The Correction" great stocks could rally ten, twenty, fifty percent. Recently on Fox Business a big trader guy said the next 15% move in the market will be to the downside, I thought "so what" the next 100% or 200% or 300% move would be to the upside. I've been helping people with investing since 1985 and people have changed. Back then it was really about buying and holding and rarely thinking about selling. Because so many people share so much animosity and fear, triggering The Correction is easier now than back then.

One thing that hasn't changed is shares of great companies always bounce back.

So I get the idea of wanting to pick the bottom or buy a dip; right now our suggested cash level for Hotline subscribers is 25%. But we are holding names we think the Street has already overlooked and believe they'll discover them at much higher levels.
This is the approach you must consider, not the notion you will pick the bottom during a market meltdown- it's not going to happen.

1900 America All Over Again

What's happening around the world right now in many ways mirrors what America went through at the turn of the century that saw an industrial revolution and confidence coming out of the Chicago World's Fair that said the sky was the limit. In fact, not even the sky posed a problem anymore as multistory buildings were erected with elevators that allowed people to live and work in a domain once reserved for birds.

There is a world out there that is growing and not seizing the bank accounts of its citizens or taxing its achievers out of envy or deterring success in the name of an artificial state of fairness.

In the early 1900s Edward Mead Johnson bolted from the company he co-founded with his brother, Johnson & Johnson, to form one focused on infant nutrition. In 1910 one out of every five children didn't make it to birthday number 5. Two of the main reasons for this were Gastrointestinal disorders and infant digestive problems. Mead Johnson developed products that that helped to fix these problems. It established a legacy for the company that continues to this day. Known for Enfamil, the company has a massive array of products.

But in America birth rates are declining rapidly, mirroring massive decreases already experienced in Europe and Japan. Births are great in other parts of the world where incomes and prosperity are evolving like never before. As a result Mead Johnson (MJN) is positioned to grow for decades to come. In the 1980s European growth was huge, and now Latin America and Asia are poised to be even greater (China sales have doubled in the last three years). The company's top ten markets reflect a world never mentioned on financial television and not considered when the pros discuss the global economy.

In America the birth rate is 13.7 per thousand, in the EU only 10.3, and 2013 GDP maybe 2.5% and flat respectively.

I think Mead Johnson (MJN) should be in everyone's portfolio now. You can wait for The Correction or you can simply take a position and if the stock pulls back then buy more.

Consider the stock idea and the commentary a freebie. Mead Johnson is an official long idea for paid subscribers, and I have another idea as well.

Will Merkel Blink?

Essentially what's going on now in Cyprus is a game of chicken

On one end is Germany which has more or less funded all these European bailouts to the dismay of its hard working citizens and on the other end Cyprus which could also represent any troubled European nation that wants a future bailout on its own terms.

Cyprus knows Greece played hardball and has been bailed out twice (2010 and 2012), and more importantly knows Germany likes the idea of a United States of Europe (as long as its calling the shots) so even if the smallest, weakest player drops out it could be like that skit where someone pulls a small thread and the entire suit falls apart.

There are already a lot of Euro-skeptics so any hiccup would be seen as massive failure and warnings about the future of a shared-currency and shared rules that come with being a member.

The initial deal to tax all savers was met with natural disgust and horror. Cyprus tried to make Russia the white knight but that seems to have fallen apart and a deal there would also need EU approval. So, it's back to square one with the clock set to strike midnight in minutes.

The ECB says no more emergency cash next week without a deal.

There are at least nine bills floating around Cyprus and suggestions of things like collateralized church assets and future natural gas revenues (selling them now) have been shot down by the ECB.

Cyprus could decide it likes having low business taxes, control of its natural gas assets, and its banking center the way it is, and go through a meltdown by leaving the Euro but having the ability to print its own currency and rebuild the nation under its terms is an attractive long term option.

It's a nail-biter for sure.