What to Buy?

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Originally published on:

August 23, 1996

The market is showing signs of tiring, especially when all of the action is in the blue chips of the Dow Jones Industrials. It almost looks like a conspiracy is going on to make the market look better than it really is. I can imagine the conspirators saying “if we can just keep the Dow up maybe people will be lulled into a sense of complacency and put the thought of selling out of their minds”. Or, “just think, it would only take several hundred million dollars to change people’s perception of the market and get out ourselves, while the getting out is good”. I hope this isn’t the case, but sometimes you have to wonder.

What to Buy?

The Stock Market Advantage has tried to seed it’s portfolio with companies that have great potential to perform over a long period of time. Since knowing when to sell is the hardest discipline of all, it is essential that stocks are chosen that don’t necessarily have to be sold when disappointing developments occur. The Tactical Timing System doesn’t have any mechanism to trade on news developments. Potential companies for the portfolio must be able to weather any storms that come along because every company seems to have them from time to time. We know ahead of time when there is a good chance of a buy signal, so we have sufficient advance warning to know when we should be researching companies. The point of this issue is to answer the question “what would we buy now if we received a buy signal?”

To begin our analysis we would want to get into groups where the demand for the service or product is expected to grow over a long period of time. One of the areas that’s certainly going to experience growth is anything engaged in supplying the aging population with what it needs and wants. Demographics are a big factor when making investment decisions and we know that the baby boom generation is now around 35-50 years of age. People in this age group have generally had their kids, bought and furnished a home, and are in their prime earning years. Some things they will spend their money on are drugs for the aches, pains and illnesses that come on with old age so companies like Merck, Schering Plough, and Pfizer should benefit. People around this age also like to go on cruises so companies such as Carnival Cruise Lines and Royal Caribbean should experience good growth. A substantial number of these baby boomers, when they retire, will purchase motor homes so Coachmen Industries and Fleetwood Enterprises should do well. These are just some examples. When you look at the valuations of these companies, they don’t seem out of line with the rest of the market. There are many more companies that will benefit from the aging of the baby boom generation. More ideas will be touched upon in future issues.

Bi-weekly or Weekly, That is the Question

When I started this publication I intended it to be a weekly newsletter. However, with demands of the family and work making major inroads in my time available to research topics, I have decided to move to a bi-weekly publishing schedule. That doesn’t mean that this will never become a weekly again, but for the foreseeable future it will be more advantageous to the quality of information published if there is more time between issues to develop thoughtful and well-researched essays.

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