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Market Thoughts - Week Ending 09/21/2012

|Includes: ARCB, CLF, DCO, DORM, Griffon Corporation (GFF), MRK

The markets did pretty much what was expected of them during the week, they backed up a let go with a gigantic growler, putting investors on notice that the Fed's bold move of the prior week...only worked the prior week.

I was on the American Association of Individual Investors (subscription required) website earlier this week and noticed an article about mid-cap stocks, a market cap sector that I am just starting to explore.

The article, titled Using Quantitative Strategies to Pick Winning Mid-Cap Stocks, was a discussion with Brian Peery the co-portfolio manager of Hennessy Funds including the Hennessy Focus 30 Fund (HFTFX), a mid-cap mutual fund.

In the article Mr. Peery explained how he built screens that would filter through the Compustat Database finding stocks that would out perform the markets while at the same time providing lower risk.

I admit that as soon as I read the words "lower risk", I thought to myself...presidential candidate!

So I read through the article and finally got to the part where mutual fund people tout how incredibly perceptive they are, fund performance.

I admit, I was less than impressed. The fund YTD has had a total return of 5.9% while the average of all mid-cap stock funds has had a total return of 7.0%.

Over the past 3 years the fund has had an average total return of 19.4% versus 16.9% for the average of all mid-cap stock funds. But over the past 5 years, which is my average holding period for a stock, the fund has had an average total return of 1.2% versus 0.6% for the average of all mid-cap funds.

And how much did investors pay for the privilege of an average 1.2% return over the past 5 years? As it turns out, the fund has an expense ratio of 1.36%.

So right there, hidden in plain sight, was the reason many investors have less in their retirement accounts than when they started; expense ratios, or the fees the fund pays for the expenses of the fund. In the case of Hennessy, over a 5 year hold, investors had 0.16% less money than when they started.

This to me highlights not only the world of investing, but the world of politics.

I noted at that time that I believed the Fed's big mortgage purchase move was purely political and that over the longer haul, it simply would not work. The markets of course became a gigantic humping machine that anybody with more than $0.25 to invest, dancing in the streets and sipping bourbon from a wino's shoe.

But reality has a way of lowering the toilet seat just about the time you start to drop your happy ass towards 30 seconds of personal bliss, and such was the case over the prior week.

The markets have once again adopted the attitude of "what have you done for me lately"?, proving of course that the length of their collective pecker is no longer than a snot string from a gnat's nose.

Yet millions of American's still hang on every word that Wall Street traders utters in between shitter stalls, that same way they believe all of the collective crap that comes out of Washington.

While I realize that this is going to go about as far as pee stream through underwear, I'm going to say it anyway. WAKE UP AMERICA!, pay attention. Take the time to ask intelligent questions and practice a little common sense.

Yeah it may require some effort, hell, in some cases it may even hurt! But what's the alternative? The way things are now, we are all going to have to work till we're 90 just to have enough Social Security money to buy our Pampers!

I said in my last weekly post that in my opinion, QE3 or whatever you want to call the current government turd hunt, will not work.

That once the dust settles and the smoke clears Mr. Obama will still be President, unemployment will still be above 8%, credit still will not be expanding, 90% of the Congress will still be in office, and the American people will still be getting shafted by the bankers and the politicians.

All we have to do to change that, is to keep our legs together, start saying no, and make the government accountable.

In other words, all we have to do to change things, is participate.


Portfolio Commentary
The Wax Ink Portfolio had a bit of a bumpy ride last week, down 1.8%, ending the week with an averaged share price of $26.58.

By comparison, the Dow closed down 0.1%, the Nasdaq was down 0.1%, the S&P 500 was down 0.4%, and the Russell 2000 was down 1.1%.

Year to date, the Wax Ink Portfolio is up 13.1%, while the Dow is up 11.1%, the Nasdaq is up 22.1%, the S&P 500 is up 16.1% and the Russell 2000 is up 15.5%.

The portfolio breakdown remains the same, with equities occupying 70% of the portfolio, and cash occupying the remaining 30%.

There are several well respected investment houses that believe the markets have entered into a cyclical bullish period and are advising their clients to, at least for the moment, stay the course.

I have been saying that I am looking for opportunities to take some money out of the markets and despite comments by the wizards to the contrary, that is exactly what I am going to continue to do.

Holdings Commentary
The portfolio didn't perform at all last week, with almost all of the holdings moving down. A couple of bright spots were building materials manufacture Griffon Corporation (NYSE: GFF), up 6%, drug maker Cubist Pharmaceuticals, Inc. (Nasdaq: CBST), up 3%, and auto parts maker Dorman Products, Inc. (Nasdaq: DORM), up 2%.

On the negative side of the ledger for the week were trucker Arkansas Best Corporation (Nasdaq: ABFS), down 12%, government communications contractor Ducommun, Inc. (NYSE: DCO), down 10%, and iron ore producer Cliffs Natural Resources, Inc. (NYSE: CLF), down 10%.

Political Commentary
I could sift through all of the political bulls__t from last week and find something to write about, in between farts. But why should I do that when you can give yourself all of the gas you can stand by reading the political flatulence recap for yourself.


Wax Ink is comprised of individual investors, NOT licensed or registered with ANY government agency. Please obtain the advice of a registered investment professional BEFORE considering any information obtained from this site.

Disclosure: I am long GFF, CBST, DORM, ABFS, DCO, CLF.