The markets are boring these days, eh?

9 industrial sectors (not just financials) are demonstrating volatility comparable to a roller coaster ride.

The credit crisis, housing slump, bank liquidity crisis/deleveraging phenomenon seemed to be an isolated domestic US problem a year ago and time has proven that rot is global in scope. It's ironic that the US is one of the few developed countries in the world that has shown GDP growth recently despite the trifecta of grief.

When the markets move, opportunities arise that come along only once or twice in a generation. IMHO, the key principles to invest wisely when blood is still fresh on Wall St. and Bay St are:

• think like a business owner. If you wouldn't want to be the owner of the whole company (if you could afford it and had the ability to manage it), why would you want a partial share?
• buy what you understand. Particularly with respect to the quarterly and annual financial reports and with special attention to the "Notes" section at the back of the report . They are usually confusing for a reason. Put these shadowy companies in the "Too hard" pile like I should have done with AIG. Read BBSI's reports and you will follow them easily. Even a very complicated company like BAM can be methodically worked through, section by section, by almost anyone even if they are not a CFA. HHULF.PK (Hamburger Hafen Logistik) is extraordinarily simple and clearly laid out in their publications--- and these have been translated into english from german!!
  
• make sure the management has "skin in the game" (i.e. significant insider ownership >10% IMO) to assure that their decisions are aligned with your interests. The management's behaviour should be rational and independent of the "institutional imperative". One of the advantages of owning a business with a high degree of insider ownership is that most insiders cannot (due to company or SEC rules) or will not trade their stock for short term gains and this builds a bottom into the share price. It also acts as a partial protective shield against "bear raids" like what happened recently to Bear Stearns, Lehman and AIG. It's hard to manipulate the stock when you can't buy a large portion of the float. Examples: SEB, COLM, BRK, BBSI, BAM.
• try to buy the best balance sheet in the business v.s. competitors. It's easy to say you want companies with no debt and lots of cash on hand; however, in many cyclical industries this is not an efficient use of working capital. Just make sure that when the unexpected happens, your company will be the last one (or one of the last) standing and positioned to wrest away market share from the much weakened competition when the dust settles.
• focus on boring businesses in slowly changing industries with predictable cash flows and high barriers to entry for potential future competition i.e. insurance companies like Markel MKL, booze manufacturers like Diageo DEO.
• do your scuttlebutt (non-quantitiative research)-- go to the mall, talk to customers and to salesmen. My wife and I have done this with AEO: watching the stores full of teenagers, buying up their products while the rest of the mall is barren.
• watch for companies that have great fundamentals but a poor short term outlook or are irrationally hated by investors i.e. Cemex CX is currently priced as if another highway, bridge or apartment block will never be built in North America or Europe. Everyone hates DELL and simply won't hear any of the upside now that it is a different company than when it was a growth stock.
• when looking at such metrics as ROE, use 5 year averages as these numbers can easily be distorted by short term, non-repeatable events in one quarter or two. i.e. LYG, AXP have astounding 5 yr ROEs in the 30's.
• buy the asset managers not the mutual funds themselves. i.e. AGF, BAM, LM
• holding companies often have unlocked value, high insider ownership and are managed for the long term i.e. IVSBF.PK, POW.TO, TYIDF.PK
• choose to delve into the areas where hundreds of thousands of brilliant minds are not. I don't invest in oil or gold stocks because a lot of very smart people with far greater resources than I are spending 24/7 trying to figure out what the catalyst will be that will push commodity prices such as these up or down. What's the chance you'll get an edge on these guys? Pretty nominal, IMHO. The way the market works is that once the "smart money" has it figured out, the market follows seconds later and becomes priced into the stock ahead of time through the influence of futures/forwards/warrants exchanges. Instead of competing with these guys, take it easy on yourself and choose stocks that are extraordinarily boring, not traded on the NA exchanges, thinly traded and/or not covered much by NA analysts. These equities are conveniently often the same ones that have high insider ownership. Examples: Seaboard Corp SEB, Hamburger Hafen Und Logistik HHULF.PK, Investor AB IVSBF.PK, Toyota Industries TYIDF.PK
• Watch for consensus and bargain guru stocks for new ideas. Don't blindly follow them-- instead consider them an elite stock filter. My favourite (free) resource for this is gurufocus.com.
• Watch what the insiders are doing. Selling is of uncertain circumstance but large scale insider buying should be noticed and factored into your buying decision making. I use Yahoo's financial page for the US stocks and canadianinsider.com for the Canadian equities.
  

Happy hunting and enjoy the process. If you don't, buy ETFs, using dollar cost averaging, rebalancing once or twice and year and then forget about it. My favourite undervalued ETF is DIA "The DOW Diamonds" at <$110/share.