"Skeptical" Favorites

10/28/2005 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

"Most people believe that ‘skeptical’ means to take a contrary or opposing view," notes Keith Fitz-Gerald, editor of The Skeptical Investor. "But it comes from a Greek word that means to illuminate." Here, he does an exceptional job of illuminating investors.

"I began my career 20 years ago working for a large pension fund consulting firm, which gave me a chance to see a lot of things that worked, and more importantly, a lot of things that didn’t work. In the mid-1990s, I decided there were a lot more things that weren’t working than were working, and I started writing what is now called The Skeptical Investor .

"My belief is that you can make money consistently by honing in on the things that avoid ‘the noise’. What I am after is acquiring those stocks and funds that are very specific to the character of the market at any given time. I don’t want to go against the trends. I am not looking for home runs, although they occasionally occur. I believe that if you don’t lose money in the first place, then you won’t have to worry about making it up. So I am looking for a combination of high growth and high income with volatility that is a third of a half of the market as a whole. It’s a safety-first orientation.

"For safety, my favorite position is Vanguard Wellington (VWELX ), which was formed in 1929 and is one of the oldest mutual funds in existence. I call it my desert island fund, because if I am going away for 100 years and I have one thing to leave to my children and my yet unborn great-grandchildren, it will be that fund. It's the backbone of our safety-first strategy. Since its inception, the fund has produced positive returns more than 80% of the time. There are very few investments that have this kind of a rare track record.

"A second segment of my newsletter is called Compound Growth Monsters. I look for a high yield and a high degree of appreciation potential. Within this category, a company that I particularly like now is Plum Creek Timber (PCL NYSE), which controls eight million acres. Timber is used in virtually every residential and commercial project in the world. It’s a renewable resource. Even if nothing is happening in the timber market, it is growing at 9% a year. Rita and Katrina will spark increased demand for timber-related products, which means better earnings for PCL. Buy and enjoy the 4.1% dividend yield.

"I’m also keen on Scottish Power (SPI NYSE), because they are looking at renewable energy. The company used to be about as stodgy and conservative as they come, but they’re making some big moves that put them square in the middle of our bull’s-eye. The company is in the process of selling PacifiCorp to Warren Buffett’s crew. With the sale of cash-intensive PacifiCorp, SPI is better-positioned to spend money on those things that will produce vastly higher returns—like PPM Energy, which is growing an impressive 50% a year and is buying wind turbines for projects expected to be completed in 2006. It also pays a very nice 4.1% dividend.

"I also look for more speculative plays that are meant to satisfy the riverboat gambler in all of us. One of my favorites is Teekay Liquid Natural Gas Partners (TGP NYSE), which moves natural gas. It’s safer, it’s clean, and it’s a viable power source. But here’s the neat thing. This is considered a boring business, even by its own staffers. They don’t even build a ship until they have a 20-year contract to lock in that ship’s life. It’s a company that I think does things really well, and it offers a 5% yield and could result in 40% to 50% total returns by the time we are done with it."

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