The year is winding down but it seems determined to go out with a bang. Santa Claus has shown up with almost 600 Dow points in his bag the past couple of days and those most terribly awful fears that the bull market was ending that were souring the punch last week have floated away in a cloud of candy canes and pixie dust. The bulls are back, the bears are wounded yet again and the parade marches on.

It is that tine of the year as we all rush around to get ready for the holidays and pundits to scramble to their highly accurate , guaranteed to be right predictions for the market and economy for next year. I got mine done already and it was included in the excellent Benzinga E-Book Market Outlook 2015 (You can get a free copy here: http://vip.marketfy.com/2015/. Some very smart guys talking about 2015 possibilities and potential including Tobias Carlisle, Nate Tobik, Doug Kass, Cate Long and others).

When asked for an outlook for next year and watch to watch for I said” Ignore all predictions and forecasts. They are simply guesses and risking your cash on a guess is fool hardy. React to what the market does rather than trying to predict what might happen. If the markets fall creating lots of safe and cheap stocks be a buyer. If they move up to levels where stocks are selling above their intrinsic value be a seller. Focus on cheap stocks with a margin of safety in the balance sheet and ignore the day to day market noise as much as possible. To really escape the noise of the broader market focus on community banks at a discount to book value and have sound balance sheets and loan portfolios.Favor those with high insider ownership and activist involvement. Learn to love illiquidity. Read a lot.

Watch: Lots of baseball and old movies, as well as whatever chick flicks my wife forces me to endure. Probably the last two rounds of the NCAA tournament and hopefully time allows me to catch up on Justified episodes. In January and February I usually watch a lot of the weather channel so I can laugh at folks in places like Detroit, Chicago and Baltimore Oh- you mean in the markets. As we enter 2015 we have a limited supply of cheap stocks outside the community banks and energy spaces. I will be watching for inventory creation events that allow me to put more cash to work. I will track carefully the movement of private equity firms to find potential bargains. I will be tracking bank stock activists very carefully as always. I will indulge my inner news junkie by tacking global events and economic developments but I will not let them dictate my investment decisions. That is guided by valuation and valuation alone.

My ironclad prediction for 2015 is that markets will open at 9 and close at $:30 most days and prices will fluctuate. Beyond that I have no idea what will happen next year. Looking at the fact that I recently sold shares of Lakeland Industries (LAKE), a protective garments company, and Air T (AIRT) an air freight company that is a major beneficiary of lower oil prices, you might think I was some sort of macro genius. After all I took huge profits in them by correctly forecasting the Ebola scare and anticipating the Saudis move to protect their share of the oil markets right? Um. No. I bought them a couple of years ago because they were net-net stocks and traded way below book value with safe balance sheets. I booked huge gains and obscene annualized returns in both but had no clue that organ eating bacteria and nervous oil ministers would cause them to move dramatically this year. They were safe and cheap so I bought and held. That will be my approach in 2015 as well.

I get asked about oil a lot these days. It is a fair question as I have been pretty vocal about my long term optimism for oil and gas stocks. I think it is still the case but we bought some oil and gas stocks in the last 18 months that have just been crushed in the decline. We bought some this month as well but those early purchases are down further than New York Jets morale and prospects. I am not a great macro guy as I have pointed out many times but some smart folks seem to share my outlook

Stephen Schwarzman of Blackstone Group (BX)told a conference last we that the sector “It’s going to be one of the best opportunities we’ve had in many, many years.” David Rubenstein of Carlisle Group (CG) said about the sector” This is a great time to buy. The bottom hasn’t been hit yet. Oil prices will probably stay low for a while.” Howard Marks of Oaktree Capital (OAK)said “six months ago, you wouldn’t have said there are opportunities to invest in the energy industry. It looked like a booming industry. Today, there clearly are, and they may get better from our standpoint.” Wilbur Ross told CNBC “"Between now and the end of the year we will have very good opportunities. People want to clean out their portfolios, not wanting to show too much energy exposure at year-end, and then of course tax-loss selling."

That is some pretty solid company. There have been a few safe and cheap stock opportunities created in energy stocks and we bought a couple of them recently and added to a couple of our crushed positions. The last two days have bought the buying to a screeching halt but if they weaken further I will continue to buy those that pass my screens for safe and cheap stock. Much as I didn’t know that Ebola would drive Lakeland up by 2.5 times my cost or that lower fuel costs would cause Air T to climb by roughly the same amount when I was buying them in 2011 and 2012 I have no clue what will eventually cause oil prices and energy stocks to turn around and go higher. I just know they are cheap and some of them still pass my all-important safe filters.

We continue to see some deals in the small bank space and I expect to see plenty more next years the trade of the decade continues to take shape. We bought another this month and will probably buy some more in early 2015 if we can get our price. We are seeing dividend increases, stock buybacks , strong earnings growth and increasing M&A activity in our trade of the decade stocks. If you are not involved in this space you should be.

By the way you can stay on top of cheap stocks and the banking sector right now but taking advantage of our two for one offer for the Bottom Decile Report and Banking on Profits Monthly. You get both for just $99 for a full year. If you aren’t already a member, click here to join us. Those that prefer a guided portfolio, weekly updates and buy/sell alerts for the small bank stocks should click here to join the gold level Banking on Profits service. When you sign up for the regular service you also get the Monthly edition free.

This will be the last Thursday Letter for 2014. The kids will all be here next week for the Holidays and we have a party here Christmas Eve for friends and family that will be well attended. Just restocking the bar for a Melvin Family Christmas requires an expedition worthy of Ernest Shackleton and that doesn’t even scratch the surface of prepping for dinner on Christmas day so I have my work cut out for me. We only get everyone together in one place a couple of times a year now so I will be taking the time to enjoy it this holiday season.

Have a fantastic final few days of the year and enjoy the Holiday season !

Tim

The whole clan and menagerie here at Chez Melvin wish you https://www.youtube.com/watch?v=KE0LtovZ2jo