For all of the gut-wrenching volatility, 2011 was a pretty good year if you
managed to avoid financials and materials stocks. Defensive stocks particularly
those that pay dividends actually did quite well. 2011 was a particularly good
year for one of my favorite Sizemore Investment Letter themes: "Money-Minting
Sin Stocks ." Though I've resisted the urge to drink heavily or take up
smoking as a means of coping with 2011's volatility, it appears that plenty of
others haven't. Jim Beam (NYSE: BEAM ) is up a respectable 8% since I
recommended it two months ago, and Diageo (NYSE: DEO ) is up nearly 16%
year-to-date despite being domiciled in Europe. Including dividends, Diageo has
outperformed the S&P 500 by nearly 20 percentage points. The numbers on our
tobacco investments are even better. Not including dividends, Altria (NYSE: MO )
and Philip Morris International (NYSE: PM ) are up 21% and 35%, respectively,
and both are at new 52-week highs. Dividends add another 5% to the returns of
each. Again, this compares to an S&P 500 that is flat for the year at time of
writing. My best pick of the year, ironically, was a financial stock of sorts
credit-card giant Visa (NYSE: V ), the winner of InvestorPlace 's " 10 Best
Stocks for 2011 " contest. At time of writing, Visa was up a full 46% for the
year, not including dividends. (Read about my follow-up pick for 2012 , and
check out the rest of the " 10 Best Stocks for 2012 "). In Visa, I saw a
company supported by powerful macro trends the shift to a global cashless
economy and the rise of the emerging market consumer whose stock price was
temporarily depressed due to regulatory fears. When the heavy hand of government
proved to be a little less heavy, Visa exploded to the upside and has yet to
slow down. If only they could all be that way We now come to my biggest failure
of 2011: Research in Motion (NASDAQ: RIMM ). RIMM is down 51% from my
recommendation price at time of writing. When I originally recommended this
stock, I knew the company had "issues." You don't find companies as cheap
as RIMM that don't have at least a little something wrong with them. Still, I
thought and still think that the bearishness was ridiculously overdone. I
dedicated a fair bit of the last issue of the Sizemore Investment Letter to
illustrating how ridiculously cheap RIMM was, and yet the stock has gotten
significantly cheaper in just the past two weeks. In the latest of a long string
of disappointments, management announced that its new line of BlackBerry phones
would not be out until late 2012 instead of the first quarter and cited the
availability of key component parts as the reason for the delay. Normally, I
would understand how an announcement like that would send the share price down
11% in one day. But given that the company trades for just four times
already-revised-downward earnings and trades for 0.33 times sales and 0.68 times
book value, it's shocking that bad news still has any effect. At current
prices, RIMM could be cut up and sold for spare parts at a profit. It really
defies comprehension given that the company's subscriber base continues to
grow (now up to 75 million). I continue to believe that RIMM has a bright future
as a services company regardless of what happens with its handsets. And I
haven't given up on its handsets, either. Even a mild improvement in the
company's fortunes could translate into a 200% gain or more. But in 2011, none
of this mattered. RIMM was a classic value trap and I walked right into it. If
I am to learn a lesson from this misadventure, it is that a cheap stock can
always get cheaper and that it pays to cut your losses early. Accountability at
InvestorPlace.com From InvestorPlace Editor Jeff Reeves , whose own review of
2011s hits and misses can be found here : In the new year, I hope to continue
some regular disclosures from all our InvestorPlace columnists as a way to show
that we are giving recommendations in good faith and that we are not afraid to
own up to our mistakes. If you have any comments to share with our writers or
have ideas on how we can best achieve some form of transparency, please send
your thoughts to me at editor@investorplace.com . We are a site run by
investors, for investors, and we are in this together. It's very important to
me that all readers can trust our commentary so please don't hesitate to drop
us a line. Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment
Letter, and the chief investment officer of investments firm Sizemore Capital
Management. Sign up for a FREE copy of his new special report : "Top 5
Contrarian Stocks for 2012."
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