Ron Muhlenkamp, stock-picker-in-chief of his namesake Muhlenkamp (MUHLX) fund, hasn't thrown in the towel on housing stocks.
Of the top 25 holdings in his fund -- which holds but 63 names in total -- three are homebuilders. NVR (AMEX:NVR), Centex (NYSE:CTX), and Toll Brothers (NYSE:TOL) make up nearly 7% of the fund's net assets, according to Morningstar. Construction-related businesses Cemex, Caterpillar (NYSE:CAT), and Terex (NYSE:TEX) constitute an additional 9%.
This at a time when the homebuilders have fallen on hard times. The SPDR Homebuilders ETF, a reasonable proxy for the sector, has shed 18% of its value since it opened for business in February 2006.
The gravel in your guts and the spit in your eye
We admire Muhlenkamp a great deal, partly because of his tremendous track record and partly because of his stock-picking philosophy. His modus operandi is something to emulate:
- He spends a great deal of time looking for great businesses.
- He exhibits patience and allows those businesses to prove his original thesis.
In an excellent SmartMoney interview this month, Muhlenkamp explained a bit why he can stick to his guns:
We have a phrase on the farm. People like to plant corn in October because it's done so well growing up until then. It's kind of the same. Whatever has done well in the past three or four years is where the public likes to send its money.
In other words, Muhlenkamp doesn't chase past performance. He doesn't fret about what "the market" is doing or saying. He's placed a large wager on homebuilder stocks since 2003, and that's worked out well every year but this one. "One year out of four, I look dumb," he told SmartMoney.
Keep it simple
While the market is a strange place, we as investors have a bad habit of overcomplicating things.
Remember when oil prices were in the $20 to $30 range earlier this decade? During that time, oil stocks were out of favor with the market. Many folks thought that with the slowing global economy, oil prices would continue to remain low and weren't sure when things were going to turn around. From January 2000 to December 2002, solid companies such as Schlumberger (NYSE:SLB) and Chevron (NYSE:CVX) were down 22% and 16%, respectively.
But since that time, the global economy has surged, and, well, you know what happened to oil prices. Schlumberger rebounded 215% and Chevron 149%.
If you'd been able to recognize the market's overreaction during the slow global market and added these oil stocks to your portfolio, you'd be sitting pretty right now.
Auld lang syne
So make this a resolution for 2007: Strive to be a patient, long-term owner of a business. Add money to your investments regularly. As David Gardner, Fool co-founder and analyst of the Motley Fool Stock Advisor investing service, recently told us, "'Add on dips' is a phantasm -- just add." (Dollar-cost averaging, available at most brokerages or fund shops, is a good way to do so.)
If you want a cheat sheet of great businesses, check out Stock Advisor. Since inception, the Stock Advisor portfolio is up 68%, compared to the market's 29%. A 30-day trial is free and gives you full privileges to the service.
For related Foolishness:
- Read up on the most important investing lesson of all.
- Find out more about dollar-cost averaging or the advantages of Drips.
- Here's an idea on where to find the best stocks for new money.
Neither Brian Richards nor Todd Wenning own shares of any company mentioned in this article. Muhlenkamp is a Champion Funds recommendation. Cemex is a Stock Advisor recommendation. The Fool has a disclosure policy.
