"Courage is being scared to death, but saddling up anyway."

-- John Wayne

Time to fess up: Yes, we're sucking wind this year -- and it hasn't been a lot of fun. Sometimes the market carries your stocks and investments upwards to the sky, and you feel like a genius, other times, it seems like every trade you make is the wrong one and the market deems you an idiot.

The latter is certainly the case at the moment with our model portfolio down 8% YTD and the S&P close to new all-time highs. I'll be honest, this doesn't make me feel good -- this is the first time in 10 years that my model portfolio has been so deeply in the red after one quarter (we have yet to have one finish the year in the red). But I'm not going to make things up and say it's okay, it's not.

But I'm also not going to panic, because panic is exactly what the market wants you to do, which is why markets often appears to shift gears just after capitulation (whether it's your personal capitulation or the general public's). The Rayno Report portfolio has been pummeled by the plunge in gold and silver and related shares. Also, energy has been surprisingly weak. I own a number of commodity names. The ferocity of the decline in the commodities complex has surprised me, but perhaps what's more surprising to me is that it has been accompanied by a rising stock market (typically plunging commodities fortell weak economic growth, and therefore are often correlated with falling stock prices; this happened in 2008).

Yes, the "Quantitative Easing" program was suppose to stoke inflation and push commodities skyward, but it hasn't, it's pushed commodities into the ground. There may be complex reasons for this but on the surface it's a paradox. My only reasonable explanation is that the situation in China is worse than thought. This is a market of many paradoxes. Below, a chart shows the extreme divergence between commodities and equities.

The S&P 500 is green, a leading commodity index is in blue. What's so strange about this is that it goes against the grain of the post-2009 recovery trade, in which these assets had been correlated by about 90%.

One of the great paradoxes of 2013: The correlation between commodities and stocks has finally decoupled.

One bright spot in our calls: We've written here regularly about the "stealth bull market" in biotech shares, which seem to go up every day. The iShares Nasdaq Biotechnology ETF is at new highs near 173, and it's up 21% year to date. Although we hold it in our model portfolio, that's not enough to overcome our worst losers such as Royal Gold (down 32%) and First Majestic Silver (40%). Shoulda bought more biotech. Shoulda coulda woulda.

That's the kind of the market in a nutshell in 2013 -- extremely powerful stocks thrusting to new highs regularly, with others simply left behind. The one observation I have about this market is that it's certainly not as easy as it looks, because many solid stocks have been left behind. One example is Intuit, a technology stock we like because of its steady growth, cash flows, and reasonable valuation. Inuit is a great company, but it's done nothing this year -- it's down 5% in the middle of a "bull market."

So what am I go to do? Absolutely nothing. The reason? April/May has been a key turning point over the years, so I'm going to watch the market closely as we glide into May. My instinct is that it's overbought and getting overvalued, and people will want to take profits going into the summer. Chances are the numbers in our portfolio will improve as the trends change. Precious metals have been so beaten up and have gotten so cheap that something has to happen -- at least a healthy short-term "dead-cat bounce." It's too late to sell them now, and with some of them no yielding over 2%, it's worth just sitting on them. It's early -- it's only April. Energy can still rally. A lot can still happen in 2013.

I would not be shocked at all to see gold and silver turn around and make new hights. To a certain extent the paradox of our portfolio is the paradox of the market -- that some stocks, such as the biotechs, march up nearly every day, but cheap, pedestrian technology stocks such as Intuit do absolutely nothing. We'll cover the paradox of the gold market in my next article.

Following my annual portfolio picks, I got some intriguing questions via email. Do you know the market will go up this year? Should I buy all of these stocks now? Should I go all in?

The answers: No, no, and no.

If I were to summarize my strategy, it would be this: If you want to reduce stress and have a reasonable chance of beating the market, you should 1) Follow a system that buys a basket of "value " with the characteristic of market-beating stocks and 2) dollar-cost average strategically over a long period of time.

In other words, I admit there is never a "perfect time to buys stocks" or "exactly the right stocks to buy." Investing isn't about betting on the sure thing -- it's about spreading out your risk and improving your odds of being slightly above average.

It's really hard -- if not impossible -- to accurately time the market. But that doesn't mean you shouldn't use timing devices! What do I mean? Well, if you think of investing as an incremental rather than a binary activity, you can use timing devices to figure out statistically opportune times to buy stocks.

The most powerful tool at an investors disposal is dollar-cost averaging, in which you deploy cash over long periods of time. This reduces the risk of going into the market at extreme highs. But if you are investing over a long period of time, wouldn't you want to use some timing devices to deploy catch at times you know might have statistically better odds of being "cheaper" times?

For example, at any given point in time during the year -- any time really -- there will be a 5% selloff. The odds are very high -- studies show this happens on average twice per year. So, if you know there is a reasonable chance of a 5% decline in the next 10 months or so, why not wait for it? If you take the long view, this means that you could use timing devices to deploy cash during moments where it is less risky to buy stocks.

What are good timing devices? There are all sorts of oscillators, sentiment indicators, and technical tools such as the put/call ratio. But I find the best tool to be sentiment indicator. I prefer to read the stock market as a barometer of emotion, if anything else. And it is quite interesting that during the course of any given year, this barometer can swing quite violently -- without really much change in economic reality. This is became humans are emotional and their perception of events is often more extreme than the impact of events themselves.

Sentiment readings are excellent indication of this human, emotional component of the market. Bullish sentiment, according to the AAII survey, recently surpassed 50%, a 12-month high, with the long run average being 40%. The low of just the past 12 months is 25%, achieved as recently as July. I find it remarkable that there can be such wide ranges of investor sentiment in such a short amount of time.

The AAII bullish readings are natural contrarian indicators. When the the crowd is feeling especially bullish, it's time to stand aside -- if not outright book some profits. If things are really bearish, it's time to add to stock positions. How do we know this? The data backs it up. See below, thanks to Thanks to Cxoadvisory.com

The chart above shows average future returns based on the AAII sentiment readings. When things are most bearish -- that is the bull reading is under 30% -- 26-week future returns are on average, much higher, more than 4%.  When things are at their most bullish -- as they are right now -- future returns average less than 2%.

To show you what a powerful contrarian tool sentiment can be in the long run, look at it this way: Bullish sentiment was 75% in January of 2000, just a month before a decade peak in the market, and it was at 19% in January of 2008, just prior to the bear market low of 2008. So clearly, extreme sentiment readings can be decent indicators of tops and bottoms.

So, if I were to use sentiment as some sort of long-term stock accumulation device, I might conclude that this really is the worst time to be accumulating stocks (even in a bull market). You want to wait for bearish AAII sentiment readings.

I can also think of it another way. What are the chances for the market to be lower at some point this year? The chances are pretty high. A decline of >=5% but less than 10% can be expected more than twice a year, according to Ned Davis Research. Such occurrences have happened more than 130 times in the last 50 years. A moderate "correction" of 10% or more can be expected about once every two years.

Now, that's the data -- the quantitative side. What about instinct? My instinct is that the market is extended and due for at least a 5% fall. This just meshes with the past action and the "feel" of the market. The market flattened out this week. and lost some momentum after a robust run. I would expect the action next week to be important -- a move to the downside could have a swift psychological effect and lead traders to book profits quickly. A fast move down to the 1425-1450 area would not be surprising.

Bottom line: I have not been adding to my portfolio. In fact, I have been selling some stocks. If I had cash I were looking at deploying into a new selection of stocks, I would wait for a better time before I started to build a position.

Here it is! The new Rayno Report Model portfolio for 2013. We have selected 13 stocks for 2013, in order to fight superstitious numbers with even more superstitious numbers (cheeky, eh?).

What exactly is in this portfolio? It is a collection of attractive stocks based on valuation and growth numbers. Our methodology looks for stocks that have attractive sales & profit growth relative to valuation, using forward P/E, return on equity, and growth calculations. The model likes a low P/E relative to its growth rate or Return on Equity. If the P/E is lower than its growth rate (PEG Is less than 1), excellent. If the P/E is lower than both the growth rate and the Return on Equity, fantastic! Lots of studies shows that stocks selling at a discount to growth and ROE outperform over time.

The bulk of our stocks are you would call "low-PEG" stocks that meet this formula. This could also be known as a "GARP" -- or Growth at a Reasonable Price strategy, though some of these stocks are priced low enought in P/E terms to be considered value investing.

To be clear, not all of the stocks this year fall into this strict valuation criteria. There are two indices -- the iShares Nasdaq Biotechnology index and the iShares MSCI Emerging Markets index -- which is a bet that those sectors will outperform. And I've included two precious metals companies (First Majestic Silver -- AG; and Royal Gold -- RGLD) because I believe that precious metals will reassert their outperformance in 2013. Precious metals companies are typically valued on reserve values, not P/E ratios. I think both these companies are attractively priced and silver seems especially poised for upside in 2013. Precious metals stocks have been unfairly punished by the market in 2013 because of the perceptions that their costs are too high, however I think rising metals prices and profitability in 2013 will show these fears to be overdone.

Overall, in running my screens and analysis for 2013, I was surprised at the number of quality high-growth companies available at reasonable valuations. IACI (Nasdaq: IACI), Priceline.com (Nasdaq: PCLN), and Omnicare (NYSE: OCR) all fall into that category. I like Riverbed (Nasdaq: RVBD) and have been looking forward to the day where it traded at a PEG of 1 or less, and that day is here. On this basis, the market does not appear overpriced. Many high-quality technology names appear quite cheap.

The energy sector is also appealing to me. Drillers have sold off, but Seadrill (Nasdaq: SDRL) has attractive profitability and growth and pays an 8% dividend. Northern Oil and Gas (NOG) is a small, fast-growing oil-shale in the Bakken region -- one of the strongest economic growth stories in the world. Go where things are happening!

In the interest of getting the portfolio out, here it is. I will profile these companies in the coming months.

(Disclosure: At the time of writing, the author and his direct family members owned many of the shares included in this model portfolio. He plans to own all of them by the end of Q1.)

Our model portfolio as reflected by the Investor Uprising Index is up 11% 2012, which is under-performing the S&P 500 index by 1% (it's up about 12% YTD). Yes there is one trading day left (today). I don't mind at all a positive double-digit year even if I under-perform the S&P 500, because I know that the model portfolio I have built is less risky than the market as whole and has done better in the long run. Personally I believe the S&P 500 is a flawed index.

As I have already mentioned, earlier in the year I left Investor Uprising, where we kept the new "IU25 Index" since 2010. That site is still up, but I will move my model portfolio back to the Rayno Report in 2013. Just a recap of the Rayno Report model portfolio strategy: When I suspended the Rayno Report Portfolio in 2010 to build the Investor Uprising site, it had a remarkable track record of 7 straight years with no losses. The model portfolio avoided the 2008 crash by being 100% in cash. The average annual return of the 7 public portfolios I published between 2004 and 2010 was a 52% annual gain.

All of this data has been transparent and published to my readers. I believe the methodology works and continues to work. The portfolio reflects not one single investing dogma, but a blend of things I've found work over time: 1) Looking for undervalued companies that appear to have been penalized by the market and 2) Spotting quality growth companies that are undervalued by the market (low-PEG stocks) and 3) Sticking with secular (long-term) trends.

My methodology is structured and refined. It is a multi-step process. I run tons of screens and look at every stock individually. I start with a bucket of about 30 ideas and reduce them to 10-12 for the year. Why do I think this formula works and it works consistently? Because it is disciplined and data-driven, it ignores the "noise" and emotion of the market. It's not driven by marketing hype or fads, which influences many of the "picks" in the media and by prominent brokers. In fact what you will find is some of the best performing stocks that have been selected by this formula were "discovered" when the market ignored them or didn't care.

Some of the best picks (with 12-month performance) have included Agrium (AGU), up 47%; Atwood Oceanics (ATW), up 12%; Celgene (Nasdaq: CELG), up 15%; Gilead Sciences (Nasdaq: GILD), up 78%; Priceline.com (Nasdaq: PCLN), up 28%, and Veeco Instruments, up 34%. All of these stocks were carefully selected after they screened for bargain valuations and my qualitative research determined that they would be good additions to the portfolio. I am still working on the list for 2012 which I plan to publish on January 6. It's okay with me that we miss a few trading days of 2013, I hope that's okay with you. There is still some more homework to do. Stay tuned: The list will be out next week.

Sorry, but no matter how much financial TV covers the fiscal cliff, I can't get worked up about it. They want me to get hysterical and panic, but my natural reaction to when the media is freaking out about something is to do the opposite.

Look at the housing bubble. Financial media discovered it after it imploded. You should have been worried about the housing bubble in 2007 when mainstream media was running features about people becoming millionaires flipping homes.

Anyway. Here's the thing about the "Fiscal Cliff" -- or FC as I will now call it. It's reality. It's like if you had a bad business that kept losing money and eventually you can't make a mortgage payment. FC is the day the sheriff comes to take possession of your home. You can think of it as an end or you can think of it as a beginning.

FC is a result of reality. "Sequestration," the name for the automatic budget cuts and tax cuts that will kick in in 2013 if Congress doesn't come up with a deal, is the fancy name for finally trying to pay your bills. The Democrats aren't real about the problem. The Republicans aren't real about the problem. The Democrats think you can raise taxes a little bit, tweak the inflation numbers in Medicare, and be alright. The Republicans think that you should implement more of the supply-side tax cuts that haven't worked in 10 years. They're both wrong. You need huge, real structural reform in government. Start by cutting the salaries of Congressmen, and go from there. Cut loopholes. Stop the mega-banks from levering up on financial derivatives. Carried interest: Acknowledge that it's just Mitt Romney's paycheck. Reform the entitlements. Get real with the American public.

And if nobody can do that? Well, welcome to austerity. I find some relief in austerity, in that at least we will no longer be living in denial. I will have less money next year. You will have less money next year. But the first step in recovery is acknowledging you have a problem.

If the FC happens, will the markets freak out? I have no idea. So far, it seems to be that there has been a fairly high probability that the FC would happen, and the markets have rallied. So maybe they know something we don't. Maybe they know that denial is bad.

 The U.S. Election presidential election is over. Capping off one of the more partisan election seasons in memory, that means surly neighbors around the country now can exchange retorts of "I told you sos" and "go away." The simmering, partisan feuds in my own extended family have already upped the ante for potential holiday-season disaster.

Media pundits have jumped all over last week's selling, explaining it as some kind of Obama protest vote or a mini nervous breakdown about the "fiscal cliff." That's silly. First off, the sell-off was triggered by bad German economic numbers, not the U.S. election (the market actually intially rallied on an Obama victory, then sold off in the early morning hours after German industrial production numbers were released).

Secondly, if you view the election empirically, an Obama victory would be bullish, as the data is unambiguous that "the market" favors Democratic presidents. Democrat presidents have precided over better returns than Republican candidates -- by a margin 38% to 8% in inflation-adjusted returns, according to historical research (see "The U.S. Presidency and the Stock Market: A political relationshiyps study of the market performance," written by Ray Valadez and Marshall Nickles.").

So, that data clearly dispels some myth still held by media pundits that somehow a Republican victory would boost the market. Blaming Obama for a randomized set of market losses in four days of the year has few statitistical legs to stand on.

If you are a bear looking for data to support your thesis, the presidential cycle theory paints an uglier picture. Markets tend to perform poorly in the first two years of a new presidential term and better in the last two years. We just capped two year of excellent returns -- in the better half of the election cycle. The presidential election cycle theory was popularized by Stock Trader's Almanac author Jeffrey Hirsch.

The idea is this: During the 3rd and 4th year of a Presidential term, the market is likely to perform better as the incumbent introduces policies designed to stimulate the economy just in time for the election season. Note that this theory tends to work regardless of who is in power.

But focusing on these somewhat short-term data points also ignores the larger forces at work with the economy: The global deleveraging cycle. This is something that won't be solved overnight by the politicians in Washington D.C. or Brussels, but at least the early indications are that it's going okay -- at least in the United States it's not nearly the disaster that some paint it to be.

The sad loss of this past election season was that these issues were not adequately explained to the general public. The debate was framed over classical economics in the context of just another cyclical downturn: Should the respnonse be Keynesian or supply side? This is no ordinary cyclical ecomomy: It's a 50-year global credit deleveraging cycle.

Historically these have taken decades to resolve. If you're wondering why the boom years of the 1980s and 1990s felt so good compared to today's World is Flat days, the answer lies in the credit deleveraging cycle. We're now paying the price of decades of credit build-up -- and then collapse.

Look at the chart below, and you can see what credit de-leveraging -- the removal of private credit from the system -- means for the American consumer. The era of borrowing and spending is over. People are now saving and cutting back -- and have been for years. 

The private debt de-leveraging cycle is the over-ruling theme in the economy

I suppose saying this during a nationally televised Presidential election is wonkish and would not be fully understood by the Mom & Pop. "Sorry, folks, but we are deleveraging the largest shadow banking credit bubble in history -- you're going to have to wait five more years."

People don't want to wait. They want stuff now. That's our problem in a nutshell. 

The good news? According to Ray Dalio, one of the world's best hedge-fund managers, he thinks the United States is doing a decent job of deleveraging while Europe is doing miserably. This is Dalio's "Beautiful Deleverging," a combination of monetary stimulus and active reduction in bank balance sheets. You can read an interesting interview with Dalio on the topic here in Barron's. If that's not enough, he's written an entire paper detailing the "Economic Machine," and explaining how the current downturn is no ordinary cyclical downturn, but part of a a once-in-a-generation 50-year credit deleveraging.

Looking at deleveraging in the political context, private debt has been slowly reduced, but much of it has been transferred to sovereign balance sheets in order to "save" the financial system. This is what brings us our heated political debates. That can be seen in the next chart, where the public debt inflates to "fill in the hole" to meet the evaporation of private debt.

We are at an interesting juncture there, as those lines above are close to meeting. There is no doubt that the explosion of sovereign balance sheets poses great risks, but the question isn't if we need to reduce the sovereign budgets and balance sheets, it's when. Moderates such as Dalio and Jeremy Grantham argue that you need to approach the sovereign de-leveraging slowly -- while the private credit de-leveraging takes place. If you don't cushion the collapse in private sector debt with some sort of public offset -- either monetary or fiscal -- the economy would have completely collapsed. So far, the healing of the markets over the last four years has proven them right. But we're not out of the woods yet.

Yes, now that we've deleveraged banks we need to start thinking about deleveraging the government, but it's a delicate balance that can easy be thrown off track. Yes, they'll need to fix the budgets, but be careful -- global deleveraging cycles do not respond well to sharp right turns. A slow, bit-by-bit approach without any radical right or left turns makes the most sense.

In Dalio's model, you cut budgets slowly and if you raise taxes -- you raise them slowly. Meaning, you don't do what Europe did: Full-bore austerity. Meanwhile, the Fed, fully aware of the problem, is undertaking the largest monetary relation in history, attempting to push up assets with its ever-powerful printing press. This process will continue, until there is sufficient inflationary pressures in the in the system to force banks to lend again. This is why owning some gold as protection is not a bad idea. It's good insurance. It's also a reason why gold has been in one of the strongest bull markets in history.

As for the stock markets? Our markets have accurately reflected the credit-cycle deleveraging. Price/earnings ratios have been compressing for a decade. This has produced 12 years of mediocre returns to compensate for the great bull run of the 1980s and 1990s.

Is it possible we can explain this action with plain-old reversion to the mean? Yes, it is. Credit acceleration fueled economic growth and consumption for many decades. Deleveraging produces retrenchment for a typical 15 years or more. It's that simple. Democrat or Republican Presidents be damned, you can't fight the 50-year credit deleveraging. You have to embrace it.

Be patient, because we are nearing the end of one of the worst market periods in history. Develeraging will take another five years. In the meantime, as Apple Inc. has shown us, you can still find winners if you pay attention to stocks that are priced cheaply relative to their growth rate.

The recent selloff seems a bit overdone to me. With the Fed still putting its foot to the floor, you should still buy cheap stocks in this dip. Yes, by the end of this deleveraging cycle P/Es will be more compressed than ever in history. But with a disciplined approach to value stock selection, that means you are being afforded to buy stocks more cheaply than ever before, regardless of who is president.

Gold has just undergone another one of its swift and painful corrections. After bottoming in July in the $1550-$1600 range, gold vaulted $200 in just two months, nearly kissing the magic $1,800 per ounce. A reaction has followed, with gold being knocked down back toward $1,700.

This type of action is typical in the gold market, which is volatile and enigmatic (and some say controlled by nefarious sources). However, keep in mind that gold, as an asset class, is still in a strongsecular bull market. Gold has been best-performing asset class over the last decade, averaging 12% per year.

I think it will continue. It is part of the "relation regime," led by the U.S. Federal Reserve and central banks around the world as the print money to save their banking system. For this reason I still think investors need to own some gold and I think this is a buyable correction.

The first question you might ask is won't the gold bull market end? Not soon. My work shows there are major trends that support the gold bull market. Here are the biggest ones:

• Money Supply Growth. Following the financial crisis of 2008, the U.S. Federal Reserve has followed a policy of "reflating" the economy by pushing down interest rates and increasing money supply. The price of gold has a historically high correlation with growth in the money supply. This policy is not likely to end any time soon. In fact, the continuing crisis in Europe and the advent of Quantitative Easing III (QEIII) by the Fed is likely to accelerate the trend.
• Negative Real Interest Rates. Gold does well in an environment of negative real rates. You calculate the real interest rates by subtracting the inflation rate from the yield on the 10-year treasury note. Treasuries are yielding about 1.75%, inflation is running at an official rate of 2% but an actual rate of 3% or higher if you use other measures. So it's clear the real interest rates are negative.

I think these two trends are part of the current "Fed regime," that is the policies of the current Fed. Ben Bernanke's pledges to keep interest rates unnaturally low until 2015. His term is up in 2014. Recently threats by Mitt Romney to not keep Ben Bernanke in 2014 have contributed to the recent weakness in gold. The market fears that if Romney is elected, you will get a more  hawkish approach to interest rates.

This is crazy. The world economy is far too weak for politicians to risk jacking up interest rates now. The global banking system is still enormously fragile. They are terrified of this. They will continue to print money.

So where does that leave us with gold? Below is a three-year chart of gold futures. Gold recently sold off hard down to a Relative Strength Index (RSI) reading of near 25. When the RSI gets into the 20s, this has typically been a goold time to buy gold.

You can also see that gold has been in a large one-year consolidation pattern after its aggressive run from $1,500 to $1,900 in 2011. There is recent support near the 200-day moving average at $1,660. This consolidation has formed a "wedge" pattern which will likely be resolved by the end of the year. My expectation is that it will be resolved to the upside -- possibly in an explosive way.

It's been a while since we've updated the goings-on in our model portfolio, which tracks selections based on our proprietary stock-selection formula.

In 2011 I moved my stock-selection process over to www.investoruprising.com, a new Website that I built with UBM for PR Newswire. We created an index based on our stock selection system called the Investor Uprising 25 (IU25). The IU25 Index, which can be tracked in real time here, is up 32% Year-to-date (YTD)! That beats pretty much all of the major averages.

Although the index still has a short track record -- less than 24 months, the way it has behaved affirms my general strategy for picking stocks and building a portfolio -- it requires sticking to a very disciplined, long-term approach based on a value criteria. I don't necessarily buy stocks when everybody likes them, and I don't necessarily buy stocks when everybody hates them (though we try to buy more in the latter case). What I do is try to do is buy the best individual stocks with the most reasonable valuations at certain points in time.

Think of it as shopping for clothes... you want to get the best clothes at the most reaonable price. That requires going shopping often and maybe having to wait until things are on sale.

Here's how I operate my stock-selection system general: I run computer screens of the market and get a group of interesting stocks. Then I further research and analyze them until I believe I can narrow the selection down. I would describe the filtering process as such: 1) Good valuation? 2) Good growth record? 3) Good company? It's very rare that people buy stocks because of these three reasons. I believe that if you look at each particular case, you further reduce the risk in buying a stock. A great company can be available at too high a price. A stock can look cheap until you look under the hood and see the company is terribly managed and not an industry leader.

When all things come together great things can happen. An example I am most proud of is Gilead Sciences (Nasdaq: GILD), one of the IU25's core holdings, which I banged on about for many years. It is a great company, very well run. It got extraordinarily cheap, with a P/E under 10 as it traded as low as the mid-30s. People hated it in 2010. Have a look at the chart, it's very interesting! I bought it, because I believed in the company and I believed in the value. It is now one of this year's best-performing stocks with price north of $60 and just this week hit a new 52-week high.

Because this system ignores the natural bi-polar action of the market, which tends to oscillate between euphoria and panic, we are not always acquiring the trendiest and hottest stocks of the moment.

A great example of this is that we were buying gold stocks when everybody hated them. Often what we acquire are considered "dogs" -- because their valuations are cheap. For this reason, the approach requires patience. Buying mining stocks was the right thing to do, because they were cheap and they have roared back ferociously.

But conversely, we don't necessarly always buy things when they are beaten down. They can still be climbing -- as long as they are cheap relative to the growth rate. A great example of this is Apple, which has always been in our index. The reason? It's always had a very reasonable valuation -- a P/E below 12 generally -- with a high relative growth rate. Apple has historically been a cheap buy in the market.

Another great example is that a few years ago, during the 2009-2012 timeframe, my screening system was spitting out lots of drug stocks such as Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Abbott Labs (NYSE: ABT). They were also paying outstanding dividends, sometimes above 5%. I bought some of these, but the process was painfully slow. These stocks were coming out of 10-year bear markets, and they flatlined for a long time before starting to climb again. But recently they have been outperforming very well.

Using such a system to outperform the market can be boring, because it is often slow, and requires patience. This is not a rapid-fire trading system. It requires trusting the system. At several points in the last year, the IU25 Index and my model portfolios were lagging, bringing out cirticism and self-doubt. But working through this and having patience is the hallmark of great investors.

All of the data on the IU25 Index, which was launched in April, 2011, can be viewed here.

Here are a few facts about the IU25 Index:

Performance, YTD: +32%

Performance, 12 months: +33%

Performance, six months: +6%

Over the last 12 months: 17 gainers, 8 losers

Two biggest gainers: Apple Inc, up 70%; Gilead Sciences, up 65%

Two biggest losers: First Solar, down 72%; Cliffs Natural, down 42%

A word about the future: There will be changes coming and I will be building a new model portfolio for 2013. The reason is that I am no longer with Investor Uprising. Going forward, I will continue to update you with stock selections and new model portfolios on the Raynoreport.com Website. Please check back for updates!

Always pay attention to new all-time highs, they are telling you something. Fertilizer producer CF Industries (NYSE: CF) has done just that this week, hitting $208 per share today, a new 52-week and all-time high.

CF has been helped by an agricultural boom, with corn and wheat prices skyrocketing from a U.S. drought, all in the face of rising global grain demand. But for anybody that dismisses this as just another commodity company is ignoring the company's incredible
track record. With a twelve-month return on equity of 39% and an operating margin of 46%, this is a finely tuned machine. There is a reason it is #1 on Barron's list of 500 best companies.</p>

The attractive numbers read like a wish-list of good investments. In addition to those great ROE and profitability numbers, CF has been growing profit and revenue at a 30% annual clip, it's got $1.7 billion on its balance sheet (with $1.6 billion in debt), and a book value of $75 per share. Operating cash flow is $2 billion per year. The company pays a .8% dividend.

I would expect that with such outstanding results you can expect the company to increase the dividend soon.

What's the key to success? In 2010, CF purchased another large fertilizer, Terra, making it the largest fertilizer producer in North America and the second largest in the world. The company has done an outstanding job of integrating those assets and strategically placing fertilizer plants all over North America, optimizing shipping routes and logistics.

The most amazing thing about CF is that it is not unusually expensive, perhaps paying the penalty that it is a commodity producer subject to the pricing swings in fertilizer. The average analyst estimate for 2012 is 26, giving it a P/E of only 7. However many analysts see earnings pulling back to $20 per share in 2013, which would give the company a P/E ratio of 10. Still not too high for a company with such high ROE and profitability numbers.

I think it's still a buy. CF fits our formula for value investing almost perfectly. Buy low-P/E. stock that have high profitability and high ROE. It's a buy and a long-term hold, and the new share-price breakout lends more confidence to the holding.

(Disclosure: I hold CF Industries in personal accounts.)

I have become fascinated by Acai, even though I can still not pronounce it correctly and I won't even bother trying to figure out how to print it with the accent which I can't find on my computer keyboard. I'm an admitted latecomer to the trend. Yes, it's old news. But it's still a good story. The recent New Yorker article did a great job outlining the background.

The New Yorker article tells the tale of how two SoCal chums and University of Colorado grads (Go Buffs!) Ryan and Jeremy Black "discovered" acai in the Braizilian jungle and started marketing it in the United States, kicking off what would become one of the most potent health-food marketing booms in recent history, aided and abetted by none other than Oprah.

What I found interesting about the article is not so much about the controversy surrounding the health benefits of acai (like most debates, the truth lies probably somewhere in between), but the entrepreneurial spirit of the two Black brothers and their partner Edmund Nichols. The went to the jungle with a load of credit-card debt, locked in a long-term contract to sell acai through a Brazilian producer, and spent hundreds of thousands in the first year to ship Acai to the United States. Within two years they were doing half a million in sales and now they do $50 million. Quite an adventure.

The other story in acai is about marketing. How does an obscure jungle fruit go from being a locally enjoyed delicacy to a multi-billion-dollar global business in ten years? Savvy marketing. The blacks hooked into real-world health research and captured the Brazilian mystique. The more nefarious marketeers later leveraged Acai into online marketing scams. But both the legitimate companies and online scammers had something in common: They knew that consumers like a good story, and you can't get much better of a story than a mysterious berry coming out of the Brazilian jungle.

Here is an abstract of the article from the New Yorker (full article available only in print):