Model Portfolio ahknaten:KGLO

Kenai National Park

Looking Back

Looking back on the past year, I have a sense of bewilderment. It reminded me of a statement a CEO once said:

I could go through a list of things that happened, but you can easily use wikipedia and look up "2008" for that. I think about CNBC and Bloomberg and all the blogs and funds and newsletters that spoke of the crazy markets. And I can't help but wonder, in all the political correctness and proper language, how many really wanted to say something like, #$@$@%@%@^@$ !

In some ways, I was "happy" what happened in the markets. But I say "happy" in quotes, because although the price targets that I had for many stocks were realized, they came at a huge cost. When I thought Apple was worth close to $75, it never occurred to me that the market would have to plunge before the stock would realize that value. I was also right that growth would have to slow down and people should avoid those momentum/hot stocks that I kept complaining about, but again, it took a market collapse to realize that. So, I am "happy", but I'm also quite sad and upset at the market.

Looking Ahead

But, to me, being a quant, not everything is bleak. Then again, I'm not a great economist either. So what do I think of the market?

To quote the great 'Groo the Wanderer',

"My mind is void". I'm not sure what to think. In the past, when I did my overall market forecasts, I always found a discount rate between 7.5% and 8.5%. Nowadays that number has exceeded 10% at times. To me, the high discount rate, indicates that the market is quite undervalued now. So from that perspective, I think the market is undervalued by about 36%. But, if you were to ask me about the market last year, and I was following the same technique, I would have thought that the market was overvalued by 15%. So what do I know? I may have thought the market was overvalued, but I never saw this mess coming. So, this year, yup, I think the market is undervalued by 36%, but I'm certainly nervous about that number. Oh, in case you're curious, I'm overweighted in Financials, Industrials, Materials and Telecommunication Services.

One of the gurus at Marketocracy, "auminer", runs a cool competition each year whereby everyone picks 5 stock for the year. So, I'll pick 5 stocks as well. I'm honestly not sure how I'll do with these picks, I just hope that they work. One of the competitors, jmfunes, has chosen the 3X ETFs, and perhaps they'll actually win. I have no idea if I'll beat them, but I hope I will. So, since I'm pessimistic about the U.S. economy, I'll choose foreign stocks that have a bit of value, growth, and hopefully some luck. Here are 5 stocks that I'll pick for the competition this year:

AZ BCE CAST NCX PHG

Are you curious as to which stocks I'll avoid? =)
Here are ten large stocks:

AAPL ABT GE GOOG ORCL PEP PM QCOM T WFC

Here are ten smaller stocks that I'll avoid:

AMSC ESLR ILMN LNG LULU OESX RVBD SFSF SVNT TSON

Ultra, Supreme, Super bull and bear ETFs. Ah, they came into focus this year, and I presume we'll have a bunch more. These ETFs are rather amusing, but I'm curious to see if they'll run into problems in the future. Who knows, but they're certainly fun to watch. Expect more ETFs to show up, and as they come out, expect the names to get more creative and obnoxiously absurd. By the end of next year, perhaps we'll have the 'Kowabunga 5X Sweet #$@$ ETF'. It would track the number of bungee jumpers in Finland, but leverage it up by 5 times. Not to mention, we'll also have the 'Life-is-gloomy-I-want-to-eat-worms Bogus -4.5X ETF'. That ETF would track the number of red-nosed clown costume sales.

Just the Bear News

Perhaps this year could be remembered as the year of the 'bear'. Bears really dominated the news this year, and I don't mean the 'bear' market. We had maulings and bear deaths and crazy attacks and bear hunts were stopped in some areas. There was a ton of stuff dealing with bears. But do you know that perhaps bears weren't the coolest animals? I was on a bus in Denali National Park, and suddenly the bus stopped and the bus full of foreigners ran to the side of the bus, shouting and pointing their cameras. It wasn't a bear, or a moose or even an elk that they saw. It was a lonely beaver in a little pond that they were excited about. You gotta realize, I come from northern ontario, those kind of things are common to me. Why a beaver would get more attention than a grizzly... I have no idea.

So, in the spirit of "holidays" and in keeping with the sensitivity of hurting some Americans, and following the "not so free speech" protocol, I wish all of you a 'happy holiday'. For those in Canada, and your lack of political correctness and retainability of humour, I wish you all a very 'eh, happy Christmas."

Cheers,

-kai

Denali National Park