Some Big Picture Views

It's the most common question I get - 'which stocks do you like?' Well I am about to tell you. But you know what? It's not the right question. The right question is how can I pick a stock profitably?

It the old thing about give a man a fish and you feed him for a day. Teach him to fish and you feed him for life. Well I enjoy teaching people to invest and trade. After all, when was the last time you heard your pension manager was doing a good job?

First, how much on average have the top 25 (one in 10) FTSE 250 (ie the 250 largest stocks outside the FTSE 100) stocks risen in the past 6 months to April do you think? Well the answer is 60%.

Now these aren't small companies. So it shows the kinds of returns possible when we're looking for fish. Okay, so here are my fish first, then some fishing tips to follow :

1. There is a 70% chance the FTSE 100 will close between 4800 and 4200 by end of the year. This is based on statistical analysis I undertake.
2. Economic growth is half way this past quarter between its lowest and greatest levels since 1997, so a sideways move on the FTSE 100 makes sense.
3. Inflation is also within government targets so no dramatic economic medicine expected - again suggesting a sideways move in the stockmarket and making the need for picking individual stocks to outperform all the more important.
4. I think the real estate sector will perform well going forward because the impact of interest rates is overstated on the sector - housing companies continue to sell at ever increasing profits the products they produce (houses).
5. Over the past month, as I write this, some of the best performers have been London and Associated Properties, Estates & Agency Holdings, Capital & Regional, Quintain Estates.
6. Similarly construction stocks will do well shadowing Real Estate. Over the past month as I write this, big names good performers include: James Halstead (14.1%), Cape (13%), Barratt (12%), Bovis (12%).
7. What about house prices. Well, houses are a product and so supply and demand and affordability come into it. Supply has been dropping since 1967 each year. Mortgage payments as a percentage of earnings are below their long term average and at 1983 lows, and well below 1990 levels (they are at 13% presently, during the crash they were at 30%).
8. UK house repossessions are at 1983 levels. They are 1/6 of what they were during the 1990-1991 collapse.