We know, we know, we know - stop telling us, already
Before we have to read another opinion about the market, let's get a few things clear.
Before we have to read another opinion about the market, let's get a few things clear.We know there has been a 25-year credit boom and we know that whoever borrowed the most money is up the creek without a paddle.We know that some individuals, businesses and countries don't earn enough to service their debt and we know that unless that debt is forgiven or restructured, they will go bust.We know there is an exclusive club of countries that are "too big to fail" and that their governments will ride to their rescue, plugging the holes with more debt, which they most surely can't pay back but will take anyway because there is no other option, and, in doing so, will consign their economies to years of austerity-inhibited zombie growth.We know that all the rescue solutions now being discussed are just a reshuffling of the deckchairs by self-interested governments and bureaucrats backed into a corner by necessity. And we know there's a risk the spin will run out and the ship will sink, taking the equity and property markets with it. We know.We also know the heady days of ingrained irrational exuberance - of borrowing to consume and borrowing to speculate of assuming equity markets will always go up and property investment is safe - are no longer assured. We know the long-term outlook for the market has been dulled by a huge debt hangover and we know that in the short term, one or other European nation could default and generate panic. We know, we know. Stop telling us, we know.Everyone has got the message and, as a result, any investors who don't want to take the risk are already nestling in term deposits and are not coming back until someone blows the all clear.Which leaves everyone else - the people who know the risks but have chosen to play anyway. They fall into two groups: one is looking for action while the other has been forced into equity-market interest by falling interest rates. Faced with decreasing returns and rising living costs, this group is looking for income and is prepared to take a risk to get it.For both groups, the market discussion has moved to their peripheral vision and the focus is on buying or trading individual stocks, not on buying or trading "the market". Last year, one in four stocks went up. The game now, as always, is finding those stocks while staying clear of those that are going down. How do you do that?One of the best ways to pick stocks is to pick themes to come at the stocks from the top down. Last year for instance, the main drivers were a flight to income stocks and away from resources. Who would have thought Telstra's total return last year would hit 29.4 per cent, while Rio Tinto would fall 28 per cent?Themes that are working so far this year include, first and foremost, a resources resurrection on the back of less concern about China, whose recent gross domestic product figure settled a lot of nerves, while further easing of Chinese policy is in the wings. It looks like China may just retain growth of 8.5 per cent this year and, on the back of all that, commodity prices have firmed and BHP and Rio Tinto are looking better. It may change at any moment but is good for now.Other themes include buying any stocks that prove themselves to be "safe" in the results season. On telling us their results would be OK, Leighton Holdings jumped 15.8 per cent and Ausdrill 27.6 per cent.With the focus so acutely on risk rather than reward, the results season will be quite polarised.Any company that tells us their results are OK, replacing fear with certainty, will jump. And the stocks that hold the most fear offer the most upside, such as currency-affected stocks, steel stocks, retailers, media stocks and those that are dependent on the sharemarket.It won't take much to set them off and, on recent experience, you will still make money even if you miss the very first move.The other big theme is the chase for defensive stocks with a decent dividend. We have listed these on the website this weekend.This is the game this year - playing themes and picking stocks.It's not rising-tide investment, it's taking advantage of anything on offer over any time frame.It requires a bit more effort, of course, and a few basic trading skills but, for some of us, that's the fun bit.