It Was the Worst of Times, It was the Worst of Times

I thought the holiday season was a good time to pull out the Dickens and not just because the market will, it seems, finish the year flat or slightly negative. Another reason for the Dickensian title is that market pros and amateurs alike, as they have correctly called equities all year, expect nothing from the stock market for the next few years. Many, in fact, expect another Lehman-like near collapse of the financial system beginning in Europe and then a contagion spreading throughout the globe to bring even the mighty China to its knees. That, at least, is the bear case for next year. And everyone, even down to the last bull, fears what will happen in Europe.

At a recent local stage production of A Christmas Carol, which was, as far as I can tell, faithful to Dickens' original, there seemed to be an addition to the montage of memories from Scrooge's Christmases past, an addition that included a financial report on how Scrooge's year had been. Haunting phrases like You have nearly doubled your money, Scrooge; The stock will surely double next year; and Profits are up nearly 80 percent, Mr. Scrooge rang through the theater. Wait. Haunting? I suppose that the director's motive in adding this surely modern commentary to a staging of A Christmas Carol was to demonstrate that Scrooge's Christmases past had all been about profits and business and not about giving and family. Fair addition, I'd say; still, what I took home that evening was further proof of the anti-finance and anti-stock-market rhetoric that saturates nearly all U.S. media today. The fear and loathing of Wall Street and the stock market has hit a crescendo this year, so much so that local directors are rewriting Dickens to include their disdain for finance.  

Add the worries about Europe's finances to the contempt for all things financial here in the United States and you have a market that seems destined for losses in the new year and beyond. I, however, will be taking the other side of that argument and that trade, for, as I've written previously, the market works in a way that ensures that the majority of investors (and non-investors) get it wrong. How can almost everyone be right about the stock market? Could this be the first time in market history that retail investors, who want nothing to do with equities, have actually been correct? Probably not, I'd say. That is why buying the stocks of good companies that others sell in panic or apathy is the best way to make money in the stock market, as long as you are willing, if you must, to hold those shares (almost) forever.

What, then, should we do with our money? We should buy good companies with international exposure that will pay us a nice dividend while we wait for Europe and the United States to sort out their accounting problems. Dow Chemical (DOW) is just such a company. I traded DOW during the past few weeks with some success, buying at about $26 and selling at $28; since then the stock has run the cycle again down below $26 and currently trades at about $28. Dow Chemical is a diversified chemical company with a global presence and a $0.25 per share quarterly dividend, which amounts to 3.7% yield at its current price. This past June DOW raised its dividend from $0.15 to $0.25, which indicates that the company is confident in its future profitability, although, one could argue, that was before concerns about a European recession flared in August and have, of course, been seething ever since; yet, a u-turn in the dividend is unlikely, I think, unless Europe drags the United States into a recession.

Dow Chemical has very good support at $25. I'll buy on dips.

I wouldn't necessarily jump in at $28, but I certainly would buy DOW again below $26, when the dividend will be 4 percent or higher. January and February may prove dicey in Europe, inasmuch as Wall Street seems skeptical that European leaders have the mettle to devalue the Euro, which is what must be done to solve the liquidity and debt crisis looming over there. I, for one, will take advantage of any dislocation in the market to add to positions of companies like DOW whose shares, without a doubt, will be higher five years from now.