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- No new trades.
The first six months of the year saw a select group of stocks power the indexes to record highs. Oil prices edged back up to the $70-per-barrel range; the housing sector continue to contract as the subprime mortgage industry imploded; long-term interest rates start to creep higher; and merger and acquisition activity continue at a record-setting pace.
As we look ahead to the second half of this year, investors are growing increasingly concerned about the rise in interest rates, stubbornly higher energy prices and the potential for a consumer-led slowdown in the economy. Balanced against these negatives is the understanding that the marketplace remains awash in cash, as private-equity deals continue to pull stock out the market. Money is also flowing back into domestic stocks due to the record highs and the lack of any good options -- real estate is done, and bonds aren't that attractive with rates on the rise from a historically low point.
The net result is likely to be a choppy, increasingly volatile market that is likely to see little change from current levels before this round of the Lab comes to an end. Such an environment requires a rifle, rather than shotgun, approach to investing, and that plays right into the strength of the Dog Pound portfolio.
We will hunt down unloved, out-of-favor stocks that are poised to take off as investors rotate out of the first-half winners and look for some long-term bargains heading into the new year. We will have to be careful to avoid real deep losers, however, as they will be susceptible to additional tax-related selling late in the year.
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It should be quite the challenge, especially given that we're up against five smart, experienced investors employing their own unique strategies. Even though my strategy is more geared for the long term than the six-month trading period of the Lab, I'm confident that we will find enough dogs with life to be competitive and, most importantly, to post better-than-market results.
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