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The 'Idiot' Who Turned Out to Be an Einstein

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It's not every day I get a refresher in Shakespeare from an unhappy reader. The last one came a couple of months ago in response to a March 18 interview I did on this site with veteran San Francisco money manager Gary Wollin.

At that time, the Dow Industrials were trading at around 6500, down more than 50% from their all-time high of 14,164 on October 19, 2007. Bearish sentiment was rampant, and Wollin, a grizzly himself since late November of 2007 (when the Dow was at 13,371), suddenly switched gears at that time and laid out a bullish case to me as to why he felt investors should begin to jump back into the market.

His March views apparently didn't sit well with some HuffPost readers. One of them was a bearish Los Angeles hedge fund manager, who questioned my judgment and obviously knew his Shakespeare: "Why do you waste your time quoting a nobody who has no credibility?" he e-mailed me. "This guy has his head up in the clouds or maybe somewhere else on his body. His bullish pitch reminds me of a famous quote from Shakespeare's Macbeth: "It is a tale told by an idiot full of sound and fury signifying nothing."

The hedge fund manager was wrong. The 69-year-old Wollin turned out to be anything but an idiot. In this instance, something more of an Einstein would be a more appropriate designation. His market timing was marvelous and anyone who heeded his words both saved and made a lot of money.

So the obvious follow-up $64,000 question to our unknown crystal-ball gazer: Now that the Dow has just topped 9000, its highest level since January, what next?

Wollin, who manages close to $100 million of assets under the banner, Gary Wollin & Company, and has outperformed the market two years running, believes the course of stock prices remains solidly up. The market is still slightly undervalued, he tells me, noting that the Dow still remains a long, long way down from its 14,100 peak. Basically, he sees a rising trend for the next two to three years, but obviously not straight up, with the Dow climbing to around 10,000 by year end.

Wollin offers a number of reasons to back his bullish case. Chief among them, he says, is the fact the economic news is getting less worse and his expectation are that we'll soon be treated to visibly better economic numbers. A rebounding economy, he says, is only a matter of time.

Giving credence to his economic argument, he points to June's 0.7% advance in the leading economic indicators, versus an expected 0.5% rise, and the third straight monthly improvement. Noteworthy, 7 of the LEIs 10 components improved last month.

Other economic pluses cited by Wollin: the likelihood that the Federal Reserve will keep interest rates low for an extended period, inflationary pressures appear non-existent and many companies are reporting second-quarter earnings that are exceeding Wall Street expectations.

Wollin is by no means oblivious to the risks, such as the prospects unemployment will continue lousy until at least the first quarter of 2010, the near-certainty that the steep losses in home values an stock market portfolios (estimated at in excess of $12 trillion) will take a big cut out of consumer spending and the likelihood of huge losses in commercial real estate which will lead to major banking problems.

Despite these negatives, though, "the good," as Wollin sees it, "considerably outweighs the bad."

In 2008, Wollin turned in a 22.8% loss, versus a decline of 33.8% in the Dow. And in the first half of this year, he was up 0.17%, compared to a 3.75% drop in the Dow.

So what market strategy would he recommend? "I would be a buyer of stocks right now and go the Warren Buffett route: blue chips, and think long term." Wollin's favorite stocks -- his magnificent 7, all of which he sees outperforming the market over the next 12 months -- are Procter & Gamble, Johnson & Johnson, 3M, Exxon Mobil, IBM, AT&T and Microsoft.

Speaking of Shakespeare, To be or not to be was one of Hamlet's more memorable lines. Wollin's takeoff on that: "The thing to be now is to be a bull -- no ifs, ands or buts."

Dandordan@aol.com