By John Reizner |
Both top performing former Mutual Series Funds manager Michael Price and Dreman Value Management's David Dreman concur that rising stock prices in the coming years may present opportunity for stock market profits - if you are invested in the right stocks and if you understand the economic nature of the "recovery."
Bloomberg.com reported on September 9, 2009 that Price, who sold his Mutual Series Funds to Franklin Resources in 1996, is finding value in selected equities in today's market. He sees similarities between the 1974-1982 100% stock market rise, and today's 50% ascent from the March 2009 bottom of 6469. The 1974 market trough to which Price alluded was a once in a generation buying opportunity, when the Dow ascended from a low of 577.60.
The Dow Jones Industrial Average closed on September 9, 2009 at 9547.22. A doubling of the Dow Jones index today from the March 2009 bottom similar in magnitude to the 1974-1982 run would result in Dow 12,938. If this occurs, it could take quite some time to develop.The March 2009 stock market low may be as significant as the 1974 trough (see related articles below for more on this subject).
Price advises investors to do their homework and to be selective - he points to companies with sound long term fundamentals that are beaten down by Wall Street after missing earnings estimates.
In the September 7, 2009 edition of Forbes Magazine, David Dreman says not to worry about timing the stock market and to think "about the purchasing value of the dollar." A wide swath of Americans and many non U.S. investors are well aware of the risk to the domestic and international value of the U.S. dollar posed by the Treasury printing money and reckless government spending under the thin guise of fiscal restraint. The September 09 dollar index contract closed September 8, 2009 at 77.34 and the index looks to be continuing its long term decline.
I agree with Dreman that current Fed policies may eventually lead to a greater inflation than the late 1970's as the Fed may not be able to gracefully exit from its current monetary accommodation in time to stop escalating prices or without grinding the recovery to a halt.
Dreman's advice is to "buy stocks, buy real estate, and sell bonds." I would add that owning assets may be the only way to protect your dollars' purchasing power if an inflationary economy develops over the next few years. In the 1970's inflationary economy, integrated oil equities, oil, physical gold, foreign currencies such as the Swiss franc and the German mark and real estate were fine investments.
I still maintain my positions in physical gold and silver, inflation hedge style equities, various other equities, agricultural and natural gas ETF's, and global and domestic mutual funds. I have sold my position in the Currency Shares Japanese Yen Trust (a temporary investment), but retain my position in the Franklin Templeton Hard Currency Fund, which has been benefiting from the declining dollar.