This Year’s Trash, Next Year’s Treasure?

My friend Larry McDonald is out with a year-end piece at Forbes that looks at a very interesting phenomenon we often see each December – once the tax-selling pressure abates from losing stocks in one calendar year, they can often go on to become the following year’s grand slams…

Yet those who bought fear at the end of 2012 were handsomely rewarded.  From mid-August 2012 to the end of December, shares of Best Buy were off some 43%, while First Solar FSLR shares were torched, off 33% from their March 2012 highs heading into year end.  The most pain was felt in Hewlett Packard HPQ, which collapsed over 60% from February 16th to December 26th 2012, off 30% in the 4th quarter alone.   These 3 stocks were up on average 90% in the first half of 2013.  We say “buy fear.”

What about 2011?  The ugliest sector, no one wanted to own in the 4th quarter of 2011 was the financials.  The space was off nearly 25% in 2011, 17% in the 2nd half of the year.   Bank of America alone was off 32% from Sept 1st through year end.   Over the next 12 months, investors fell back in love with the financials, up 27% on the year, BAC surged 100%.

Can you truly buy fear at this time of year and hold through 2014? If so, your top sector candidates are the gold miners, down an astounding 53% on the year. But – Larry says to check out how the bond market is treating the paper of any disparaged equity you’re thinking of buying first.


Let Fear Be Your Friend in the Market (Forbes)


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