One on One with Alan Skrainka, Chief Market Strategist at Edward Jones
Tuesday, November 13, 2007
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SUSIE GHARIB: More analysis now on today's stock market surge. Joining us, Alan Skrainka, chief market strategist at Edward Hones. Hi Alan.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: For days now, all the talk in the markets has been gloom and doom and now today we see this big surge in the Dow and the NASDAQ. What do you make of this turn around?
SKRAINKA: I think the lesson for investors is the mood on Wall Street can change very quickly. But people should only make changes to their portfolio very slowly. Right now investors have a lot of questions. They want to know who is holding the bad loans, how much do they have and what the impact is going to be on the rest of the economy. It's going to take time to get answers to those questions.
GHARIB: So what is your view then on the markets? The Dow is, for example, 800 points away from its all-time high. Does it go higher from there or could it just as easily spiral down?
SKRAINKA: Well, in the short term we don't know. And there's so much uncertainty right now related to the housing problems, but as we saw today, when the turn does come, it will come very quickly without warning and so an investor should be fully invested, properly balanced and make sure you have quality investments in your portfolio. Yes, this could take time to work out these problems, but no one can say for sure.
GHARIB: It's been also surprising watching the action over in the NASDAQ stock market where we've seen dramatic -- today it was up 90 points. Last week it was down 100. We don't see this much volatility in the NASDAQ. What's going on with technology stocks? What's your view there?
SKRAINKA: Well, people were pouring into technology stocks with the view that technology stocks don't have sub-prime loans, so that's really the place to be. But as we know, technology stocks are very sensitive to even small changes in the economy. It's clear that the problems are not just related to the housing sector. It could spill over to the rest of the economy, so technology stocks are moving dramatically up and down based on whether you think this problem is going to be over soon or whether it's going to be long lasting. So have just a little bit of technology in your portfolio, but don't have too much.
GHARIB: Is that what you're doing with the portfolios at Edward Jones? You are still buying technology stocks?
SKRAINKA: We're building portfolios that have proper balance. Technology should be about 15 percent of some portfolios, maybe less in some others for some more conservative investors and realize that if you own mutual funds, you also own technology stocks. So you don't have to guess which stocks or which sectors to be in.
GHARIB: Let's talk a little bit about your investment strategy now that you've sort of brought up this subject. Your asset allocation is still pretty bullish, 65 percent stocks, 35 percent bonds for I guess for an average portfolio, whatever that is, for a long-term investor. What is your strategy? What are you put in portfolios?
SKRAINKA: We don't make dramatics changes to that mix. That's a benchmark. It should be adjusted for each individual's risk tolerance and what their goals are. Generally speaking we think the market trades at about 14 and a half times earnings. So we know about all this bad news and everybody else does, too. That's reflected in stock prices. We have really cautioned investors to go lightly at small cap, emerging markets and junk bonds. They should instead favor large cap stocks, quality bonds and international developed markets because investors are not being properly compensated for taking large risks right now.
GHARIB: Is this a good time to put money in any of these beaten down financial stocks we saw today the Goldman Sachs, Bear Stearns, all of them were rallying. What is your view on that?
SKRAINKA: Our view is financials are a very critically important part of the U.S. economy. You can't be all the way in or all the way out. You should have about 15 to 18 percent in financials and if you have new money to invest, you can nibble carefully, but only in the best quality names, those companies that don't simply do mortgage lending, for example. You don't need to stick your head in the lion's mouth to reach your long-term goals. Buy the quality companies, companies like JPMorgan Chase for example, as opposed to a company that just does mortgage lending.
GHARIB: Outside of the financial sector, name one or two of your favorite stocks to put new money in and that's good for a long-term investor.
SKRAINKA: We like large companies that pay good dividends, that tend to do well in good times and bad, companies like Procter & Gamble for instance, Pepsico, even a 3M, for example, which has been beaten down a bit. These are companies that you can put in the portfolio, that you can watch grow over a long period of time and you're not taking a lot of risk just in case the sub-prime problem gets worse.
GHARIB: Alan, does do you own any of these stocks or does your firm have any relationship with them?
SKRAINKA: No, I don't own the stock but JPMorgan Chase is an investment banking client of Edwards Jones.
GHARIB: All right, Alan, thanks a lot, appreciate it.
SKRAINKA: My pleasure.
GHARIB: My guest tonight, Alan Skrainka, chief market strategist at Edward Jones.
