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Our current Special is...* Bank of New York Mellon Corp. (BK)

The Bank of New York Mellon is a global financial services company whose divisions include Asset Management, Wealth Management, Asset Servicing, Issuer Services, Clearing and Execution, and Treasury Services. Having traded its physical bank branches for asset management operations of J.P. Morgan and subsequently merged with Mellon Financial, the company that was founded in 1784 is no longer a traditional bank, despite its name. In addition to being the largest sponsor of ADRs (American Depository Receipts) and Direct Investment Plans, BK is a major provider of ETFs (Exchange Traded Funds) and the prime custodian of the government's Troubled Asset Relief Program (TARP) funds and operates in 27 countries. Consensus estimates called for it to have earned about $2.79 per share in 2008 and to go on to net about $2.93 per share this year, compared with $2.62 in 2007. The stock's price/earnings ratio is about 10 and its dividend yield is 3.4%.

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Commentary

The New Mythology
Searching for the root causes for the recent financial meltdown, some otherwise intelligent people have decided that 'diversification didn't work in 2008.' As 'proof,' they point out that virtually all industry sectors and asset classes were down, leading them to conclude that the strategy had somehow failed. But diversification has never been a guarantee against market losses. Indeed, it almost guarantees that they will happen! That may sound like good reason to abandon the approach, but consider the alternative. A concentrated portfolio trades the promise of greater gains for the risk of much greater losses. Just ask anyone who put most of their money into Bear Stearns, Fannie Mae, Washington Mutual, or even General Motors. They would gladly exchange their 80-100% losses for a market-matching, diversified portfolio that lost 'only' 35-40%. What makes diversification such a good idea is that the market has historically had many more positive years than negative ones, so matching (or doing a little better) than the market promises to be a long-term winner while minimizing risk. Logic should tell us that it's less an investment approach than a mathematical certainty. Misinterpreting its short-term outcome is a sign that many people have taken leave of their senses, something that shows how much psychology drives stock prices more than reason in extreme times. A similar mistake is the pronouncement by those with a short-term focus that 'Buy-and-Hold is dead.' Such a judgment depends entirely on treating a market bottom as if it is a permanent condition or final outcome, ignoring the oversold condition of even the highest-quality firms. What these misguided judgments have in common is that they are coming from short-term traders and media that are driven by a need to sensationalize the news of the days, which is, at best, temporary. Savvy investors should know better than to fall prey to such fear mongering.
Sincerely,
Moneypaper Inc.
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