It's 2008 And The "R" Word Is "In" On Wall Street!

IT'S BARELY THE new year, and already conventional wisdom seems to be shifting under many feet on Wall Street. This year, the conventional wisdom doesn't seem to have much conviction. Investors are still shaken by the real estate, mortgage and credit crises which dampened 2007 and continue to roil markets this year.

Just a couple of weeks ago, with revelers ringing in the new year, many pundits were saying there would and wouldn't be a recession in 2008.

Then stocks went into a nose dive, with the Dow Jones Industrial Average plunging more than -800 points from December 31, 2007 through January 9, 2008. The catalyst for this specific reactive stock market down pull, is based on on the latest figures illustrating a sharp drop in employment. This, is a fact and a significant piece of data which needs to be seriously considered for re-aligning any stock portfolio (unlike the millions of other useless shock-headlines derived by the financial talking heads speculating tea leaves). Furthermore, the Dow Jones Averages are now testing support levels and only the markets will advise us if we go lower from here. (See Chart)

So let's cut through the chase ... what is a small stock investor to do in 2008?

Solely based on the essence of this blog, the answer is no different than what has been done for 2007; That is to, "Follow The Big Money Trend".

Based on the facts, we know this:

(1) Oil and commodity prices remain sky high.

(2) Dow Stocks with maximum exposure overseas will do well
Yes, that is the fact. Emerging markets have de-coupled from the U.S. and won't be affected as much by a slowing U.S. economy. Most are now at record multiples compared to U.S. and European stocks. This disparity will not persist indefinitely.

(3) Defensive sectors like consumer durables and health care will outperform growth sectors such as technology and manufacturing.

Especially during the first half of the year. But as interest rate cuts begin to be felt, one can expect technology and even battered financial shares will rebound by the end of the year and at some point, will offer compelling opportunities.

(4) The real estate collapse will stabilize, and overall markets will begin to improve.
(But when? The answer is, "No one knows!" ... and without the facts, we're not going there!)
However, we can agree prices won't fall forever - Like everything else in the financial world, real estate "booms and busts" are clearly trends and always cyclical. Until we see some hard evidence a recovery is underway, only then would it be prudent to speculate with the odds in our favor, period. (... umm, Our crystal ball says it could be this year, 2009 or in 2015!)

(5) The current "Big Money Trend" for individual Dow 30 stocks is as follows:

All are in a "DOWN" Trend, with the exception of the following still maintaining an "UP" Trend and still considered a "BUY":

KO

MO

MRK

PFE

WMT

*** The Following Stocks BEGAN their DOWN Trend in Our DJTP and Are a SELL ***

INTC

MCD
PG

*** DJT Portfolio Closes 2007 Year Up +27.3% ***

Happy New Year!

Well, here we are ... Another calendar year gone by, one more Dom Pérignon champagne cork has popped and we now begin to ponder what 2008 may bring.

While 2007 ended on an mediocre note for many stock portfolios, our DeanJonesTrader Portfolio (DJTP) closed up +27.3% for the 2007 Year!

There is no place for feelings on Wall Street or in stock investing but we will admit, on this New Year's Day it feels reeeeal good knowing the DJTP crushed the major Index and benchmark averages for the 2007 year! Here is a look at the facts and the final hard numbers for 2007 in comparing our yearly performance to the major stock market benchmarks and index:

SP500.....+3.7%
DOW......+6.3%
NASD......+9.5%
DJTP....+27.3%

Looking back on 2007
It is interesting to note our DJTP moved up consistently throughout the course of the year (as illustrated in the 52 week chart shown below). However, the months of May and June 2007 were critical for setting the stage. We locked-in profits from several gains, but more importantly, we shed all financial stocks from the portfolio (AXP, AIG, C, JPM), and furthermore loaded up on the defensive stocks (KO, PG, MCD, MO, XOM) still a prevailing momentum trend upholding our gains today.

As the whipsawed markets of recent months have rattled shareholders and shattered a lengthy period of unusual market calm, our DJTP moved up only +2.74% in the last quarter of 2007 (while the S&P 500 was down -4.63%), but we'll gladly take the +27.3% profits for the year, as is! (For trivial purposes, our DJTP hit an all time year-high of +30.3% on Friday, December 7, 2007).

... Okay, now enough with the celebrating!

"Lessons learned" in 2007
One can say history does repeat itself. As expressed in our "Mission Statement" where we state a "rule" of sorts; CUT your LOSERS short, and let the WINNERS RUN --- can never be overemphasized. The one single and most costly mistake made in our DJT Portfolio was to prematurely dive back into the financials once again (AIG and C in particular), which took down our portfolio value significantly single handily.

In July 2007, our DJTP had already recorded a +25% new high for the year(!) Ironically, we had preserved gains and locked in some profits back in June/July 2007 based on that "rule", at the same time when the entire sector flashed a strong sell as the subprime-mortgage fiasco became ever more public. (See ‘sells’ for AIG, AXP, C and JPM on Friday June 15, 2007) ... However, we hesitated to sell in the second go-around, and it cost us a few percentage points.

Rising volatility is nothing new on Wall Street and is typically a signal that new market leadership is emerging. While volatility creates opportunity, you don't necessarily need to overhaul your investment plan. More often than not, making small, tactical shifts to a properly allocated portfolio can position you for a changing market climate.

This approach seemed to have worked for 2007.

Below are details on the current DJTP... and a great 2008 to all!

DJT Portfolio Holdings as of 12/31/07
(click on image below to enlarge)

DJTP vs. S&P500 Yearly Gains Chart - 12/31/07
(click on image below to enlarge)

... And the Winner for Best 2007 Quote on "Financial Wisdom":

"As we enter 2008, the mood remains focused on serious economic confusion."

- Al Goldman, Chief market strategist at AG Edwards

.

(... umm, this from a financial professional? I am entertained and mortified at the same time)

.

*** We also would like to take this opportunity to thank all you readers for your continued support. We are excited to have successfully completed our first year and pleasantly surprised the DeanJonesTrader Portfolio (DJTP) surpassed all major benchmark indexes, in profits and gains by a wide margin. To think of it this was accomplished with only investing in 30 boring stocks makes it even more enlightening! And as for the year ahead and our investment philosophy? We plan to change absolutely ... nothing! As mentioned before, "It's the end-of-the-world" useless forecasts and time consuming predictions by many financial professionals will continue to be professed in 2008. But don't let the financial gurus with the crusty crystal balls mislead you as they attempt to mis-lead the masses. The truth is that whether in good economies or not, money can be made on momentum trends, and the numbers are the facts ... and "forecasts and predictions" are ... just that!

Happy New Year!***