Get A Grip On Your Fears Ken Fisher, 03.11.09, 06:00 PM EDT
Forbes Magazine dated March 30, 2009
You can't be a successful investor unless you can overcome your fears. So what's bothering you? Maybe, after reading one too many stories about investigations of Ponzi schemes, you are fearful that your entire portfolio may have been embezzled. Huge and scary! Yet I've seen nothing addressing this well and simply. There is one foolproof, easy way to be sure this never, ever happens to you.
If you hire anyone to make investment decisions for you, be sure it, he or she is separate from whoever has custody of your money. That's it. Have your assets held at a major-name custodian such as Schwab, Merrill Lynch, Fidelity, ubs or the like. Have someone else nonconnected make decisions about what to buy and sell. End of embezzlement story.
Every story ever about faked accounts, including those involving Bernard Madoff and Allen Stanford (who, by the way, has been the subject only of a civil fraud complaint), combines custody with decision making. Once the portfolio manager has custody he can take the money out the back door. Some set up this way to embezzle. Others start out honest but later fall to the temptation to exaggerate their returns. Separating the two functions is a prophylactic. Without some grand collusion between the two firms, embezzlement is impossible.
Note that even when Lehman failed completely, those who had securities custodied there were fine. Yes, doing this means some types of commingled investments like hedge funds may be harder to do or impossible. But if you set up this way, you will never be Madoffed.
The other fear these days is that of falling stock prices. This is not an irrational fear; stocks that are off 50% from their highs (and a lot are, at this point) can keep falling. But you can temper your fear by realizing that low prices make stocks less risky, not more risky. Unless there has been a corresponding collapse in its business, a company whose $60 shares are now at $30 is less risky for the investor.
Last month I showed why I think the next bull market will be led by stocks in the energy, materials, industrial supply and consumer discretionary sectors. Here are some.
Alcoa (nyse: AA - news - people ) (5.5, AA), the world's third-largest aluminum maker, is no growth firm but won't disappear, either. Its stock almost did, losing 87% in this bear market. With all the writeoffs and layoffs, no one can see reasons for optimism. I like that. At 17% of its $26 billion in annual sales, even though sales will fall, there is still plenty of room for the stock to rebound. Alcoa has the cash and credit to withstand two years of losses. Its recently announced dividend leaves it with a 12% yield. The dividend will get cut. Still, the shares are a buy.
The French cement firm Lafarge (9.5, LFRGY) is the world's second largest, with $24 billion in revenue. Tied as it is to real estate development, cement scares the heck out of people. But note that Lafarge had record sales in 2008 and the fourth quarter. Profits declined but modestly. The stock is off 78% in the last year. Yes, earnings will fall, and I don't know how much. But I'll bet the stock will recover long before Lafarge's business does. The company trades at 30% of annual sales and two and a half times trailing earnings
Britain's Rexam (16, REXMY) is the world's largest beverage-can maker, and its shares are down 70% from their September 2007 high. The giant will keep its market share and more after this recession, and we'll still use cans. The dividend was just increased and now yields 11%. The price is seven times trailing earnings.
The Dutch firm Akzo Nobel (nasdaq: AKZOY - news - people ) (33, AKZOY) is the world's leading producer of house paint and is also a leader in industrial and automotive coatings and specialty chemicals like polymers. Akzo is well run and has low costs, a strong balance sheet and great liquidity. It should bounce back hard. At 50% of revenue and 12 times depressed 2009 earnings and with a 6% dividend yield, it's something you can buy and hold.
Wet your whistle on Heineken (other-otc: HINKY.PK - news - people ) (12, HINKY). Also Dutch, it has the leading market share for beers in Europe. It operates at least 100 breweries worldwide and grows moderately. In a downturn beer isn't very economically sensitive. But the stock fell with the market--and so should rise with it, too. It sells at 80% of annual sales and 12 times trailing earnings. The dividend yield is a well-covered 3.5%.
Money manager Ken Fisher's latest book is The Ten Roads to Riches (John Wiley & Sons, 2008). Visit his homepage at www.forbes.com/fisher.