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Great ideas are the lifeblood of the investment business and the exclusive focus of The Manual of Ideas. Authored by investment and finance professionals who have grown up on the teachings of Ben Graham, Warren Buffett and Joel Greenblatt, and have studied under or worked with luminaries such as... More
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The Manual of Ideas (monthly)
  • Downside Protection Report Highlights Top Ideas of the Month: Both Featured Companies Operate in the U.S. Gulf of Mexico Natural Gas Industry 0 comments
    May 31, 2010 6:11 PM | about stocks: CMZ, CHK, DO, NBR, NE, MCF, HAWKQQ, PDE, BP, NFX

    In the just-released monthly issue of Downside Protection Report, The Manual of Ideas highlights the research team's top two monthly investment ideas. Each stock is judged to have strong downside protection and above-average upside potential. Here is an excerpt from the editorial commentary:

    Last month we wrote that “May could prove to be a good month to ‘go away.’” Indeed. Investors were rattled out of complacency — one might say unexpectedly, but such things are never expected. The S&P 500 Index ended the month down 8%, bringing the benchmark’s YTD performance to an unimpressive -2%.

    Where we go from here is impossible to know. Significant problems remain in our world, but this is hardly anything new. Prior generations have dealt with even bigger problems, and the stock market has done just fine over the long term. As a result, we believe investors need to keep their perspective and their “cool.” Timing the market is almost always an exercise in futility.

    The only market timing to which we subscribe is the one based on bottom-up idea availability. If ideas with strong downside protection and good upside potential are hard to find, it’s perfectly fine to hold a large cash position. However, when decent businesses are available at a discount to their liquidation values, the time may be right to be fully invested without worrying whether the market will have another leg down. Time has shown that Ben Graham-style investing works. A reason it has continued to work for many decades is that it is hard to do. Humans are not wired to invest in “troubled” companies, even if the troubles are temporary.

    Take the massive oil spill in the U.S. Gulf of Mexico and the moratorium that has been put in place as a result. Does anyone really believe that the Gulf of Mexico will suddenly become off limits to oil and gas exploration? Will regulation really become that much more costly and burdensome, despite the best efforts of the energy industry lobby and the fact that once the news cycle moves on, legislators and regulators tend to move on, too? While we’re at it, does anyone really believe that the much-touted shale plays will usher in an era of unlimited supply of natural gas at prices that make it barely economical for companies to explore for gas?

    The two companies featured in this issue may present interesting opportunities for investors willing to look beyond the headlines and toward a world that remains starved for energy. Emerging economies continue to demand increasing amounts of oil and gas, while true alternatives remain in their infancy. And with commodities in general looking more attractive vis-à-vis easily printed fiat currency, history may yet play out in way that puts this month's two featured companies among the beneficiaries rather than the victims. Did we mention the two companies are cheap?

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