The tried-and-true principles of good investing — diversify, pay attention to a company’s fundamentals and maintain a long-term strategy — aren’t necessarily good advice when approaching the 2004 equity market.
That’s according to Wendell Perkins, chief investment officer of Johnson Asset Management. He spoke Tuesday at the Phoenix Country Club.
As portfolio manager of the Johnson Family International Value Fund, the Johnson Family Large Cap Value fund and the Johnson Family Small Cap Value Fund, he has $700 million in assets under his management.
Johnson Asset Management is part of the Johnson family of businesses, which also includes the maker of household products like Pledge, Shout and Windex, and Johnson Bank.
It also is affiliated with Mayo Clinic in Scottsdale through the Samuel C. Johnson Research Building.
The Dow Jones industrial average may be back above 10,000 and investors’ confidence may be high, but the market remains a low-return environment, Perkins said.
While overall earnings growth is expected to reach 15 percent this year, and more companies are trying to disclose more information and are acting more conservatively, Perkins expects many factors will contribute to the market’s continued volatility this year, including:
• An overall market that is overpriced and relying too heavily on rapid growth.
• The prevalence of fickle investors.
• Uncertainty about the U.S. economic recovery, particularly in the second half of this year.
• Market speculation that could once again drive investors out of the market.
"If we’re in a low-return environment, then you’re in a situation where all of the common investment characteristics don’t pay off over time because valuations are too high, earnings growth isn’t strong enough and so you’re going to see those multiple contractions that are going to keep stock prices from doing very well," Perkins said.
That’s why it may be a good idea to look at alternatives to what’s traditionally considered smart investing, he said.
Last year, most quality stocks were outperformed by "junk," which calls into question the validity of relying on a company’s fundamentals in deciding whether to invest in it, Perkins said.