Bold, Crazy Calls That Will Destroy Your Portfolio

"And early though the laurel grows, it withers quicker than the rose."
-- A.E. Housman, To an Athlete Dying Young

Though Housman was writing about the plight of a young athlete in his classic poem, it could just as easily have been written about gurus on Wall Street.

I was aghast reading a recent article from my fellow Fool Morgan Housel about the bold call from analyst Dick Bove that investors should sell all of their stocks. Words like "ludicrous," "dangerous," and "insane" came to mind. At the same time, though, it made perfect sense.

There are those in the stock market who have made their names by making investors gobs of money over long periods of time -- Warren Buffett comes to mind, as does Peter Lynch, Seth Klarman, and Joel Greenblatt. However, there are also those who have come to the fore like a thunderbolt -- abrupt, loud, and very difficult to ignore. This latter group tends to make its mark by making big, bold calls that turn out to be right and could have either made investors a ton of money or helped them avoid massive losses.

Dick Bove and his Chicken Little call definitely fall into that latter group.

Unlimited do-overs!
The beautiful thing for "experts" who seek media fame through audacious pronouncements is that the media tends to give them the opportunity for unlimited chances to get it right. Bad calls get quickly swept under the rug and ignored, while predictions that are on the money boost the analyst into the spotlight -- and can bring with it the opportunity for lucrative speaking engagements, promotions, or the chance to start a firm named after them.

With each subsequent cycle, a new set of gurus grab the media's attention and become the go-to names when it comes to writing splashy headlines that reel in readers. During the Internet bubble, folks like Ralph Acampora, Abby Joseph Cohen, Ryan Jacob, and Mary Meeker were the stars -- there was even an online fan club for Jacob. But when tech cooled, so did the media's interest in anything they had to say.

Today, we have names like Meredith Whitney, Nouriel Roubini, and Dick Bove who have jumped into the spotlight because of their views on banks and financial companies and the economy more broadly. Their stars are already beginning to fade -- Whitney appears to have been very far off on a very bearish call on municipal bonds, while Roubini stayed bearish even as stocks rebounded sharply following the downturn. I suspect Bove's recent nutty proclamation will cost him what remaining credibility he has.

The problem for investors
It's inevitable that the supposed economic and stock market soothsayers of today will fade into the background. Nobody I know of has been consistently accurate when it comes to predicting the future when it comes to the broad market or the economy, and with every successive class of fortune-telling all-stars, there is always a fall from grace as investors realize that this set of gurus doesn't, in fact, have all the answers.

But the appetite for somebody who knows it all in advance remains insatiable, so this charade continues. Hopefuls for the crown of this cycle's expert make all-or-nothing pronouncements with the promise that if they're right, the media will be eating out of their hand, while if they're wrong they'll get another shot at it tomorrow.

Of course, the big losers in this game are investors who are constantly being bombarded with extreme, bombastic pronouncements that claim the market will either soar or crash.

Don't panic or party
It'd be foolhardy to think that any of this will change, so investors' better bet is to be Foolish and hardy -- that is, focus on investing in businesses based on fundamentals and standing that ground whether everyone else is buying indiscriminately or selling everything and burying cash in the backyard.

Right now, it's particularly interesting to me that Bove is making such a dire call. The market isn't priced for quite the apocalyptic scenario that he's expecting, but a great many individual stocks are trading at some very attractive prices.

Company

Return on Equity

Dividend

Current Trailing Price-to-Earnings Ratio

2006 Trailing Price-to-Earnings Ratio

Wal-Mart (NYSE: WMT  ) 23.4% 2.8% 12.3 18.0
Coca-Cola (NYSE: KO  ) 41.1% 2.8% 12.7 18.9
Intel (Nasdaq: INTC  ) 25.9% 3.8% 10.2 19.1
Medtronic (NYSE: MDT  ) 20.2% 2.7% 12.6 37.6
Lockheed Martin (NYSE: LMT  ) 77.0% 4.0% 10.0 17.5

Source: Capital IQ, a Standard & Poor's company.

None of those numbers guarantee that the bottom couldn't fall out of the market. However, these stocks are still a heck of a lot cheaper than they were prior to the crash. Heck, they're cheaper than they've been for years -- or ever. And unlike the "experts" making brash predictions, these companies have been around for a long, long time, and I don't think we need a crystal ball to figure that they'll continue to be around for years (decades?) to come.

In other words, I agree 100% with Morgan's conclusion -- that is, that you should "buy companies when they're cheap and sell them when they're not" and can the market timing efforts. Oh, that and go ahead and shut off CNBC and the spotlight-seeking experts.

In the comfort of that silence, you can check out 13 more dividend-paying stocks that my fellow Fools think are worth buying now.

The Motley Fool owns shares of Wal-Mart Stores, Medtronic, Lockheed Martin, and Coca-Cola. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel, Coca-Cola, and Wal-Mart Stores, as well as creating diagonal call positions in Intel and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Intel, Wal-Mart, and Medtronic, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (3) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 03, 2011, at 12:18 PM, David369 wrote:

    Time heals all wounds applies pretty well to investments. I guess if I was acutally watching the stock market all the time or had a alarm set to warn me of a sharp rapid drop of the general market maybe I could hop out in time and then worry about figuring out where the bottom was and get back in. Not going to happen. If I pulled every thing out for a week or so because of uncertainty, odds are that week the market would jump because some numbers or other came in better than expected.

  • Report this Comment On August 04, 2011, at 5:22 PM, nonoyesno wrote:

    Hahaha! Looks like Bove's recent nutty call was perfectly timed.

    Good job Bove... you made this article worth reading.

  • Report this Comment On August 05, 2011, at 2:21 PM, TMFKopp wrote:

    @nonoyesno

    "Looks like Bove's recent nutty call was perfectly timed."

    Exactly the kind of short-term thinking I try to avoid. But different strokes I guess...

    Matt

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