What Not to Buy in 2015
Today we're going to talk about a few areas investors should avoid in 2015.
First let me share one of the most unlikely -- and instructive -- success stories you'll ever hear.
In 1994, a 23-year-old man was stocking shelves at his local grocery for minimum wage. A year earlier he played quarterback for a small Midwestern college. Now he and his wife lived in the basement of her parents' house.
The man wanted to get back into football, but the odds were slim -- he was a stockboy with modest athletic credentials.
Yet this man didn't give up. He started playing minor league pro football in arenas. He excelled. After a few years, he caught the attention of NFL scouts and scored an invitation to training camp.
Soon he earned a spot as a backup quarterback on one of the worst teams in the NFL.
Then something truly amazing happened. The team's starting quarterback was hurt in preseason. The former stockboy took over the reins.
He posted one of the greatest seasons in NFL history. He earned MVP honors. Then he led his team to a Super Bowl championship.
He was rags-to-riches personified.
Sounds like a fairy tale, right? Yet it gets even more dramatic.
The quarterback brought his team back to the Super Bowl two years later, capping off a three-year run of excellence. He was one of the best players in franchise history, and a beloved fan icon.
Within two years, he was gone.
A thumb injury affected his production. Management had an exciting young backup on the roster -- a player considerably younger. They released their storybook quarterback, figuring he was finished at 33.
Five years later he was playing for a championship with his new team, throwing for the second-most yards in Super Bowl history. He had turned around the fortunes of a second losing franchise.
That exciting young quarterback who replaced him? He flamed out within a few years. He never approached the greatness of his predecessor. The team entered an era of futility lasting nearly a decade.
All because they opted for the flashy new thing over the proven winner.
The saga of Kurt Warner and his Horatio Alger-style rise to glory tells us something important about investing.
Familiarity breeds underappreciation
Everyone likes the hot new thing. It's human nature. We like novelty. We're drawn to rich possibilities. Because what's new is usually unknown, the potential seems limitless.
Who wants to get left on the ground floor? Or dismissed as a Luddite?
Yet this attraction to new things often works against us. We overvalue potential over proven production.
It's a lesson we often learn the hard way.
Technology companies are today's bright young things -- and for good reason. The best among them offer staggering returns. They change the way we work, play and communicate.
Yet all technology is not created equal.
In 2015, it's time to look at the technology sector with a cold, evaluating eye. Stay away from trendy, shiny new things with questionable valuations and allergies to profit.
Instead of making high-variance bets on social media or cloud computing companies that don't make money, look at pedigreed winners.
Red hot Chinese e-commerce firm Alibaba certainly has hype. It looks great so far. Yet this year we'd put our money on the "old warhorse" of search, Google.
Take a closer look at some of the established giants of the industry. Old school firms that have perfected the art of making money. Companies that aren't propping their stock up with a lot of buzzword-infested hot air.
Before this year, a lot of analysts believed Apple's cachet had waned. There were lots of doubts voiced about the company's product line. Apple stock stagnated a bit in 2013.
We all know what happened. Apple soared, bringing in a 12-month return of more than 40-percent.
Old technology stalwarts Microsoft and Intel also rewarded investors with tremendous gains.
The bottom line? Avoid the flavor of the week this year, and double down on companies with pedigree and production.
Avoiding out of control volatility
Gold is certainly nobody's idea of a trendy young thing. It was old-school in Julius Caesar's era.
With gold prices suffering as a result of a strong dollar, you might view gold as a strong play in 2015.
We're not betting on it. Interest rates are likely going up this year, making the dollar even stronger while keeping inflation in check.
Oil, too, is huge question mark. Energy stocks have taken a beating. While we know what goes down is definitely coming up in this case, that doesn't mean it's a smart gamble this year. We're not buying the dip.
The incredible volatility in the market makes many energy stocks a very risky play. Unless you've got the stomach for some serious setbacks, you probably should wait until the situation clarifies itself.
The same advice goes for commodities funds. Unless you're playing a very long game, it's best to sit on the sidelines for awhile. Your opportunity will come eventually.
It's a patient formula that certainly worked well for Kurt Warner.