Bacall Investment Tips: What Is Missing From 2016 Investment Advice? Optimism And 'Cool' Stocks

Lots of advice, but it is focused on lackluster/tepid expectations. It seems 2015’s negative surprises and poor performance set the tone for 2016’s outlooks. Even articles that include “bull market” in their titles restate what went wrong and end up asking the question of whether stocks can rise again. The only certainties offered are that the U.S. stock market will be volatile and that it will not generate a double-digit return in 2016. A good example is the AP article, “Expect less and buy antacid: 2016 investment forecasts.”

Investing is becoming more of a grind. Expect it to stay that way.

Analysts, mutual-fund managers and other forecasters are telling investors to expect lower returns from stocks and bonds in 2016 than in past years. They’re also predicting more severe swings in prices. Remember that 10 percent drop for stocks that freaked investors out in August? It likely won’t take another four years for the next one.

That brings us to what is missing from most advice: Optimism and “cool” stocks. When attitudes and advice center in one area, taking a contrarian stance by focusing on overlooked or dismissed areas can often reward investors with lower risk and/or higher returns.

Disclosure: Author is fully invested in U.S. stocks and actively managed U.S. stock funds. Holdings include the five stocks mentioned below.

Contrarian investing using optimism

Contrarian investing is often linked to troubled, deeply discounted stocks. However, “contrarian” simply means going against a popular trend. Thus, selling a popular investment or buying stocks that others are ignoring are also examples of contrarian investing.

So, what is so special about adopting an optimistic attitude? Because it means having confidence in the future, and that shifts the investing strategy to future growth. Are the uncertainties and reversals revealed last year still at work? Of course. However, everybody knows about them, so today’s stock prices fully reflect that information. What is not yet included in the pricing is the expectation that today’s problems will be corrected by tomorrow’s actions. Instead, the 2016 advice says or implies that, because the solutions are not currently visible, we should not count on them occurring. This “wait until the dust settles” procrastination is the surest way of missing out on the largest, safest returns from stock investing. When the good news is obvious, prices are already up.

And now to that “cool” portfolio

If we are going to be optimistic, then we can focus on the companies that delight. These are the companies that have something special, unique and desirable to offer. Happily, they are obvious, so it is just a matter of having the confidence that their futures can be bright. To succeed, investors can focus on what they know and like, or they can use advisers or actively managed funds to perform the selection. (Personally, I prefer a combination of my own choices and funds managed by organizations in which I have confidence.)

Below are my five favorite “cool” companies. Their shared characteristics are leading developers of top end products and services that can support high pricing and profitability. In addition, the companies are well structured and managed to succeed in evolving growth areas.

1.       Apple AAPL -6.22%

2.       Goldman Sachs Group GS +0.65%

3.       Starbucks SBUX -1.40%

4.       Time Warner TWX -0.14%

5.       Walt Disney DIS +0.37%

The bottom line

The current market environment has investors and advisers focusing on risk, uncertainties and low expectations. It is this caution that gives us the right and incentive to be optimistic and confident, buying leading companies for the brighter days ahead.