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Are Smartphones A New Recession Play ?

By past investment norms, you wouldn't think an expensive electronic gadget would be considered a secular growth investment to fall back on in a weak economic time. But expensive electronic gadgets have insidiously wound their way into the fabric of our daily lives since past recessions. The coup de grace to the old view of gadgets has to be the smartphone. We have come to depend on these just like our bar of soap in the shower. Companies like Apple have become the new Procter and Gambles, only faster growing.

Along with this changing view of secular growth, Wall Street is coming to the morning after realization that delevering down from the debt binge is going to be a chronic condition afflicting the investing world for some time to come. "Derivatives" used to be thought of as a good and sophisticated thing. Now, when CNBC's in-house rock band thinks up a name for themselves, they come up with "The Derivatives". It reminds me of that episode of the old Dick Van Dyke Show from the mid '60s, when bands first started naming themselves after the most unsettling, disgusting thing they could think of. Rob was second guessing the naming of a band, wondering why they hadn't called themselves "The Festering Sores".

Derivatives and their aftermath are going to be a festering sore for us for a long time to come, unfortunately. So whatever the good secular growth investments are, that's what we want. Smartphones and gold are two that come to mind among defensive, but fast growers. CBS ran a smartphone article last week calling them "seemingly recession proof" and running into the problem of not being able to get enough chips from a chip industry underestimating Jim Cramer's "smartphone tsunami". Cramer seems to be right about what he said well over a year ago - that everyone was underestimating it. He felt so strongly about it that he made up a whole separate stock market, a smartphone index, on August 11, 2009 to show off it's market beating performance. I thought it was a neat idea, because I agreed with him that the market was underestimating it. But upon perusing through the tech stocks, I found some that I felt should be in any such index that he didn't include. So I jotted down a list and called it the "supplemental" index.

So is this index beating the market over a year later? Well, let's see. If you had invested $10,000 in each name, here's how they would have done (as of Sept 2):

Original Index
+ 5694.68 STAR (merged)
- 5777.46 PALM (merged)
+ 1228.08 CIEN
+ 2096.77 TLAB
+ 3956.40 ADCT (merged)
- 3148.23 TKLC
- 2230.68 CTV
- 1211.65 QCOM
+ 2255.40 BRCM
+ 2849.55 NETL
+ 1784.10 XLNX
+ 5247.34 SWKS
+ 833.32 RFMD
- 1200.00 ONNN
+ 1057.65 CY
- 3725.90 TSRA
+11487.36 SNDK
- 377.36 CSCO
+ 176.24 GOOG
- 3869.73 RIMM
+ 5394.40 AAPL
+22520.28 on $210,000 +10.7% vs +8.6% f0r S&P 500

My Supplemental Index
+ 1481.48 WRLS
- 769.20 NTE
+18003.60 ARMH
- 20.00 CHA
- 370.37 SYNA
+ 357.15 CHU
+ 1842.87 LLTC
+ 7459.27 OVTI
+ 16367.93 AKAM
+ 5999.64 CREE
- 2000.00 ERTS
- 833.30 STX
+47519.07 on $120,000 +39.6% vs +8.6% for S&P 500

Combining the two lists together, we get +21.2% - a serious outclimbing of the market, but taking a back seat to gold's +31.8% over that period. Let the bad times roll!