It's been a topsy-turvy nine months for the stock market, with investors doing their best impression of a commuter trying to beat a traffic jam. They've been jumping in and out of stocks, trying to guess the market's next move the way that a frustrated driver weaves from lane to lane, trying to guess which section of the highway will open up. In August of last year, investors pulled out a net of more than $14 billion from stock mutual funds and exchange-traded funds, according to Investment Company Institute; over the next three months, they put nearly all of that back in; then, in December, January, and February, they yanked close to $22 billion out; in March they put more than $12 million back; and since then, they've pulled out a net of more than $35 billion.
In the end, all of the buying and selling has probably been as much help as lane-changing and tail-gating and neck-craning are during a traffic jam -- which is to say, not much.
In traffic jams, drivers end up wasting lots of energy (and even money, in the form of gas and wear on their brakes), putting themselves at risk of getting into an accident, and causing all sorts of undue stress.
Investors who jump in and out of the market are likely doing a lot of the same, in a manner of speaking. They jump from one asset or sector to another when it starts to move upward (or when they simply have a hunch). They listen to the pundits on TV and the Internet, or even their neighbors and friends, trying to find some piece of information that will let them outsmart the market. And in the end, all of the pundit-watching, short-term moves, and second-guessing leave them no closer to their financial goals. In fact, it often leads to selling low, incurring unnecessary trading costs --and a lot more stress and anxiety.
With traffic jams and market downturns, it's very hard to know exactly when they'll start and stop -- making it very difficult, stressful, and counterproductive to try to avoid them. That's why I am a big believer in using systematic investing strategies. I invest using quantitative "Guru Strategies" (which are based on the approaches of investing greats like Warren Buffett and Peter Lynch), and I use them in a highly disciplined, systematic manner, buying and selling only at fixed, regular intervals.
The goal of such an approach is to eliminate the short-sighted, emotional, "lane-changing" decisions that many investors make, because usually those decisions are bad ones. The research of Dalbar, Inc., shows that the average mutual fund stock investor has underperformed the broader market by 3.52 percentage points per year, on average, over the past 20 years. The greatest factor in that underperformance, according to the group: "voluntary investor behavior", which includes panic selling, excessively exuberant buying, and attempts at market timing.
In addition to helping cut down on emotional mistakes, systematic investing can, frankly, also be a lot easier on your nerves. By acknowledging that short-term dips are going to happen -- there's no way around it -- you don't drive yourself nuts trying to miraculously avoid them. You put your faith in proven, long-term investing tenets, rather than your own ability (or lack thereof) to somehow predict the unpredictable short-term moves of the market. It's akin to turning up the air conditioning, putting on some good music, and just trying to relax when you're stuck in a traffic jam, rather than becoming a nervous, lane-changing, tail-gating wreck.
It's hard, of course, but that's what I've been trying to do these past nine months. Rather than trying to outsmart the market in the short-term, I'm putting my faith in guru-inspired strategies with stellar long-term track records. Here are some of the stocks my best long-term performers are keying on right now.
Anika Therapeutics, Inc. (NASDAQ:ANIK): Massachusetts-based Anika develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. Its therapeutic products help in the areas of orthobiologics, advanced wound care and aesthetic dermatology, surgery, ophthalmology, and veterinary services.
Last quarter, Anika ($660 million market cap) increased EPS by 96% and sales by 44%, helping it earn high marks from my Motley Fool-based strategy, which is inspired by an approach detailed by Fool co-creators Tom and David Gardner. The strategy also likes Anika's 34% after-tax profit margin, 0.55 P/E-to-growth ratio, and lack of any long-term debt.
Caleres, Inc. (NYSE:CAL): Formerly known as Brown Shoe Company, Inc., Caleres is a global footwear retailer and wholesaler. It operates through two segments: Famous Footwear and Brand Portfolio. The Famous Footwear segment includes Famous Footwear stores, as well as Famous.com, and is a family branded footwear retailer with around 1,038 stores. The Brand Portfolio segment offers retailers and consumers a portfolio of brands by designing, sourcing and marketing branded footwear for women and men, selling to wholesalers and consumers.
Caleres ($1 billion market cap) has taken in more than $2.5 billion in sales over the past year. My Benjamin Graham-inspired model is high on its shares. Graham, known as the "Father of Value Investing", was a very conservative investor, and this approach looks for companies with good liquidity (current ratio of at least 2.0) and a strong balance sheet (long-term debt should not exceed net current assets). Caleres has a 2.2 current ratio, and about $485 million in net current assets vs. $197 million in long-term debt. It also trades for just 13.3 times three-year average earnings, and a reasonable 1.6 times book value.
Sanmina Corporation (NASDAQ:SANM): This firm provides end-to-end manufacturing solutions in the communications, defense and aerospace, industrial and semiconductor systems, medical, multimedia, computing and storage, automotive and clean technology sectors.
Sanmina ($1.9 billion market cap) gets strong interest from my Momentum Investor model. It likes that the stock's high 12-month relative strength (85) has been rising over the past 4 months; that the firm increased earnings 129% in the most recent quarter (vs. the year-ago quarter); and that Sanmina has a stellar 28.7% return on equity.
Polaris Industries (NYSE:PII): The Minnesota-based company makes off-road vehicles (including all-terrain and side-by-side vehicles and snowmobiles) and on-road vehicles (including motorcycles and small electric vehicles). Its shares have struggled recently, but the $5.4-billion-market-cap firm has averaged a return on equity of 44.1% over the past decade, part of why it gets strong interest from my Warren Buffett-based model. The approach also likes that it has increased earnings per share in all but one year of the past decade, and has enough annual earnings ($407 million) that it could pay off all debt ($528 million) in less than 2 years, if it so chose.
BofI Holding (NASDAQ:BOFI): BofI -- short for "Bank of Internet" -- has just one location (in San Diego) but its Internet business allows it to have several billion dollars in assets and customers across the US. The approach I base on the writings of Martin Zweig likes its 27% long-term EPS growth rate and 26% long-term sales growth rate. It also likes that EPS growth accelerated in the most recent quarter to 65%.
Disclosure: I am/we are long BOFI, SANM, ANIK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.