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Purple Crayon: Two 2011 Trends and a Pick for 2012


Regardless of what you may think, good investing isn't about predicting what "should" happen or what will happen "eventually." Making money in stocks is the result of seeing what's been happening in the recent past then using the information to deploy your money in a way that takes advantage of the future.

Confusion on the above point is why so many people get destroyed shorting even the biggest of stock debacles. Consider Research in Motion (RIMM). RIMM is a horribly flawed company and one of the worst performing stocks in 2011 yet I'd bet more money was lost shorting it during RIMM's ascent than has been made shorting it this year.

Now that my perspective "bias" is clear here are the themes I cared about in 2011 and how I'm playing them in 2012.

The Themes:

* Buying and Holding didn't work for the 13th straight year. A lot of folks have been dogmatically holding stocks or shorting markets over that time span. You could have made money trading the market or buying and holding certain select winners, but if you bought into the promise of "10% annualized returns" for stocks you've spent about 15% of your life getting nothing out of your portfolio. THAT is a lousy trade.

* Consumers still buy what they need, despite the headwinds. The idea here isn't that consumers are capering about, throwing money everywhere like it's 1999. They aren't. What they are doing is finding ways to buy staples and occasionally splurge on discretionary items. A lot of money has been made shorting lousy retailers, but betting against a large basket of consumer stocks has lost traders money.

The Pick:

* I like Ford (F). The average car on the road is over 10 years old, the highest ever. The run-rate on auto sales is inching higher. Modern cars are so much more efficient than they were a decade ago that there's a decent argument to be made that swapping out the beater for something new actually makes financial sense.

Ford specifically has inept competition, good products, an improving balance sheet, and an incredibly volatile stock. In other words, it should work at least temporarily with the tailwinds of the first two trends.

While you're reading this I'll be buying Ford stock. Could it lose me money and cause me no end of grief in the court of public opinion? Absolutely, but this is the life I have chosen. I like my chances, am looking to trade the name with a low-teens exit point, and am more than happy to admit I'm wrong if needed. This is a stock idea, not a financial suicide pact I'm making with myself.

As per our standing rules, I'm not advising you to do anything. It's your money; don't let me or anyone else dictate what you do with it. Once more, with feeling THIS IS NOT ADVICE. I'm telling you what I'm trading and why. If I'm wrong, you'll let me know and if I'm right, most of you won't. Either way I get to eat what I kill or go hungry, financially speaking.

That's the way it should be. That's the way I like it.

Happy New Year.