New Rules Are the Old Rules: Invest With Sense

by Marc Bastow | August 14, 2012 8:00 am

Is it possible that we are entering a time when investors are actually … you know … investing?

That’s an interesting notion put out by The New York Times‘ Paul Lim on Saturday. Lim suggests that the recent rally that’s pushed the S&P 500 up nearly 7% since June has a different feel to it[1], as investors are avoiding just jumping into sectors on a whim and a hope, and are taking a more prudent and cerebral approach.

Really, shouldn’t we have been doing this all along?

The rally has been fairly broad, with telecommunications companies like AT&T (NYSE:T[2]) and Verizon (NYSE:VZ[3]) performing well, along with consumer staples Colgate-Palmolive (NYSE:CL[4]) and Clorox (NYSE:CLX[5]) as examples.

However, a subtle change is taking place, as apparel retailers like Nordstrom (NYSE:JWN[6]), Saks (NYSE:SKS[7]) and Macy’s (NYSE:M[8]) all take advantage of investors paying a little bit more attention to the economic and financial markers put out through government statistics that suggest consumers have a little bit more disposable income.

The most recent employment report for July showed the economy generated a more-than-anticipated 163,000 jobs, and recent housing reports suggest small signs of improvement in home prices. Investors are looking at such signals, and perhaps for the first time in a long while, trying to make informed choices on how the stocks they covet fit the economics of the data.

Of course, this should be the mantra in every shareholder decision! Why try to slide into an oil and gas play like Exxon Mobil (NYSE:XOM[9]) if you believe energy prices will decline? But investors often do so as a knee-jerk reaction to economic events and in hopes of getting a few extra points of yield.

Better to do some research and make informed decisions: If home prices are rising and new housing starts are showing up on the radar screen (or even better, around your neighborhood), look into homebuilder stocks.

After all, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A[10], BRK.B[11]) bought into Clayton Homes, so why not do some research on D.R. Horton (NYSE:DRI[12]), up nearly 40% year-to-date, or Ryland (NYSE:RYL[13]), up over 50%?

What it all means is that investors should as a matter of course focus on the fundamentals like growth and valuation, as well as understand the macro factors that make the markets run.

Markets will rally and fade, and there will always be periods of shear fear — nobody is quite sure what the European end game will be, and as much as anyone wants to handicap the November presidential election, the best you can do is prepare for either outcome.

Investors should always maintain the baseline knowledge that they’ve done their own homework instead of just following the herd.

Marc Bastow is an Assistant Editor at As of this writing he is long XOM.

  1. has a different feel to it:
  2. T:
  3. VZ:
  4. CL:
  5. CLX:
  6. JWN:
  7. SKS:
  8. M:
  9. XOM:
  10. BRK.A:
  11. BRK.B:
  12. DRI:
  13. RYL:

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