BEST INVESTMENT IDEAS: FIRST-QUARTER UPDATE
Market skid trips up local stock experts
Hyman tops local stock experts despite 11.6% loss in portfolio
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Local stock expert Barry Hyman had been cautioning investors that the U.S. market was overvalued.
Now that the air has come out of Wall Street, he expects continued headwinds if history is any guide and unemployment trends follow typical cycles.
Given the mortgage meltdown, record-high fuel prices and a slowing economy, none of the four local stock experts in the seventh annual Star-Bulletin survey of best investment ideas posted a gain in the first quarter.
However Hyman, vice president-managing team for the Maui branch of Michigan-based FIM Group Ltd., did the best as his hypothetical $20,000 portfolio fell 11.6 percent to $17,674.81.
Dwight Melton, co-founder of the Hawaii Stocks and Options Group, was second with a 14.8 percent drop to $17,043.45. Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, was third with an 18.1 percent decline to $16,384.87. And Norm Caris, who lives on Kauai and is managing director-institutional sales for Caris and Co., was last with a 22.7 percent drop to $15,455.50.
2008 year-end forecasts
Hawaii stock experts are mixed on whether the major indexes can increase this year.
| Norm Caris
||1,475 Caris and Co.
| Richard Dole
||1,500 Dole Capital LLC
| Barry Hyman
||1,300 FIM Group Ltd.
| Dwight Melton
||1,650 Hawaii Stocks and Options Group
|March 31, 2008
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Local stock expert Barry Hyman has been warning investors for several years that there was too much euphoria in the U.S. markets and the best bets were overseas.
Three months into 2008, his fears have been realized.
The mortgage meltdown, record-high fuel prices and a slowing economy have contributed to a downturn in the stock market.
And even a value investor like Hyman, vice president-managing team for the Maui branch of Michigan-based FIM Group Ltd., hasn't been immune to the slump.
Hyman's hypothetical $20,000 portfolio fell 11.6 percent to $17,674.81 in the first quarter, but the damage was small enough to beat three other local experts in the seventh annual Star-Bulletin survey of best investment ideas.
Defending contest champion Dwight Melton, co-founder of the Hawaii Stocks and Options Group, was second with a 14.8 percent drop to $17,043.45. Richard Dole, chief executive of Honolulu investment adviser Dole Capital LLC, was third with an 18.1 percent decline to $16,384.87. And Norm Caris, who lives on Kauai and is managing director-institutional sales for Caris and Co., was last with a 22.7 percent drop to $15,455.50.
All in all, only four of 20 picks from the four stock experts rose during the first quarter.
With the stock market attempting to find its footing, Hyman sees things getting worse before they get better.
"While I hate to try to predict what investors will do in the short term, logic would dictate U.S. markets should weaken as the economy deteriorates until expec- tations come down to reality," Hyman said. "There may be several rally attempts along the way, but the combination of rising unemployment and falling home prices make for a difficult environment for sustainable broad-market gains."
Hyman's best bet in the first quarter was UltraShort QQQ ProShares, a double-inverse Nasdaq-100 fund that goes up when the Nasdaq 100 declines. UltraShort QQQ ProShares rose 31.6 percent, making it the best-performing individual investment from any of the stock experts. However, Hyman's success with UltraShort QQQ ProShares was more than offset by a 54.8 percent decline in Kazakhstan oil explorer Transmedian Exploration.
"(Transmedian) is a speculative Kazakhstan oil play with what we believe are very valuable assets," Hyman said. "The key will be whether or not the firm can pull off a strategic transaction for these assets, or figure out a way to finance ongoing production in a way that does not overly dilute common stock shareholders."
Hyman's remaining picks in the first quarter were Japanese automaker Toyota (off 5 percent), Japanese megabank Mitsubishi UBJ Financial (down 6.8 percent) and RMR Asia Real Estate Fund (down 18 percent).
Dole was the only one of the four experts not to pick a single winner in the quarter, but he limited his losses enough to finish with the second-best record.
His best performer was pharmaceutical giant Pfizer, which slipped 6.6 percent. His worst pick was iStar Financial, a real estate investment trust, which fell 43.1 percent. His other selections included Newport (down 12.7 percent), a scientific and technical instrument company that has exposure to the growing solar-energy market; PowerShares QQQ (off 14.6 percent), which tracks the Nasdaq-100 index; and Honolulu-based Alexander & Baldwin (down 16.1 percent), the parent of Matson Navigation.
Dole thinks the worst of the downturn is over now, assuming there are no further surprises.
"The direction of the market all has to do with perception, and with financial companies operating with thin capital positions, write-downs can be devastating," Dole said. "However, financial companies with adequate capital and internal expertise in managing foreclosed properties may benefit when the cycle turns."
Melton, an aggressive growth investor who has won the contest three of its six years, managed only one winner in the quarter with United States Oil Fund (up 7.4 percent), which reflects the performance of the spot prices of West Texas Intermediate light, sweet crude oil. While record-high oil prices made United States Oil Fund a good place to be in the first quarter, Melton's bet on China was a bust as iShares China (off 20.7 percent) and Powershares Golden Dragon China (down 27.2 percent) both slumped.
As a result of the slumping Chinese stocks, Melton bailed out of Powershares Golden Dragon China and bought United States Natural Gas Fund, which rose 33.8 percent in the first quarter before he owned it. Under the rules of the contest, stock pickers are allowed to change their picks at the end of each quarter. United States Natural Gas seeks to replicate the performance of natural gas, and invests in future contracts on the New York Mercantile Exchange.
Melton also sold Powershares Clean Energy (down 29.2 percent), which is focused on green technology and alternative energy. In its place, he bought UltraShort QQQ ProShares, the same double-inverse Nasdaq-100 fund that is owned by Hyman.
The remaining pick that Melton is keeping in his portfolio is iShares Brazil, a country index fund that slipped 4.5 percent in the first quarter.
Melton said he expects growth to resume in the third and fourth quarters of this year, primarily on the strength of actions by the Federal Reserve to cut interest rates and add liquidity to the financial markets. Economists are looking for at least a quarter-point cut when the Fed meets on April 30.
"Currently, investors are focusing on the Fed's efforts to boost the economy," Melton said. "They appear to like what they see, given the better recent showing by the stock market. It takes courage to be a bull on stocks in this environment. However, investing in such uncertain times is often highly rewarding, if one is able to look past the valley to the business recovery that lies beyond."
Caris was the only stock expert to have two profitable investments in the first quarter in textile producer Unifi (up 19.4 percent) and Hawaiian Holdings (up 17.6 percent), the parent of Hawaiian Airlines. Hawaiian's stock has continued to rise in the second quarter due to the shutdowns of Aloha Airlines and ATA Airlines.
But Caris was tripped up in the first quarter by the Chapter 11 bankruptcy filing of Sharper Image, whose stock was off 93.9 percent to 17 cents as of March 31.
His other holdings are semiconductor equipment maker Novellus Systems (down 23.6 percent) and Collective Brands (off 30.3 percent), formerly known as Payless Shoesource.
Caris thinks the market has stopped its slide due to extreme pessimism, "which is usually a good indication of a bottom," he said.
"As a general rule, you don't win by fighting the Fed, which has aggressively lowered rates," Caris said. "There are not a lot of good alternatives to stocks, especially real estate, which has further to fall."
Best investment ideas of 2008
Hawaii stock experts began the year with a $20,000 hypothetical portfolio: