How bad was it? Ask Warren Buffett

A tough first half produced few winners -- and some startling losers.

Your portfolio is in the tank. But at least you're in good company.

Legendary investor Warren Buffett's Omaha-based Berkshire Hathaway is down 14 percent for the first half -- slightly more than the major indexes.

Here in Minnesota, it's no different. Only 21 of our Star Tribune 100 companies gained ground in the first half. The Bloomberg-Star Tribune Index, which tracks the state's largest publicly held companies, shows total returns of minus 12.1 percent, or slightly worse than the Standard & Poor's 500 (minus 11.9 percent).

Over the past three years, the ST100 index has inched ahead just 2 percent, compared with 4.4 percent for the S&P 500.

Still, there are some spectacular winners. The best Minnesota-based company to own so far this year is Mosaic, the big fertilizer company that's benefiting from the global boom in corn and grain. Mosaic, whose major shareholder is Cargill Inc., is up 53.4 percent this year. It has returned 110 percent annually over the trailing three-year period.

The losers are spectacular in their own way. UnitedHealth Group Inc., a stellar stock for a decade, returned to Earth in the first half. Total return at UnitedHealth sank 54.9 percent through June 30. The company last week announced that it's laying off 4,000 employees as the insurance market softens and, separately, agreed to pay $912 million to settle two class-action lawsuits regarding stock-options practices that have dogged the company for two years and led to the resignation of its highly paid CEO in late 2006.

Total return at MoneyGram International Inc., Minnesota's contribution to the global credit crisis, was off 94 percent. MoneyGram's woes are largely the result of the firm's ill-timed investment in subprime mortgages. That cost CEO Philip Milne his job last month.

Total returns at consumer- goods companies such as Wilsons the Leather Experts, mattress maker Select Comfort and restaurant companies Buca and Caribou Coffee were down 54 percent or more in the first half, as tightfisted consumers slowed discretionary spending.

A few good companies

Among the few winners are smaller companies such as Fastenal, the Winona nuts-and-bolts company, which is up 7 percent this year and 13 percent annually over the past three years. Buffalo Wild Wings and Techne Corp., which makes biological products, are smaller companies that are hard chargers in their industries and also have been good to shareholders so far this year (up 6.9 percent and 17.2 percent, respectively, through June).

"But overall, everything about the stock market is negative lately," said Mary Daugherty, a professor at the Opus College of Business at the University of St. Thomas who also leads the Aristotle Fund, the student-run fund. "I sat with my student managers [last week] and we're sitting on cash. They don't want to invest. All the news is bad, they say.

"The reality is there are certain companies that are down that are good. This country ... this economy is not going to roll over and die. We are an innovative people with innovative companies. Everybody is downtrodden. I'm not sure we've seen the worst. But we're close."

Headlines about $140-per-barrel oil, higher inflation, more write-downs in the banking sector and dismal auto sales have meant hardship on Main Street and paralysis on Wall Street.

The good news: Main Street investors with well-balanced portfolios of stocks and mutual funds and long-term outlooks -- and who do not trade in and out of the market -- can win at this game.

Andy Engel -- equity market strategist at Leuthold Weeden investments, a place where bears are encouraged to growl -- was surprised when, after the first quarter's sharp downturn, the market moved even lower recently.

"We're cautious about the stock market at this point," he said. "We believe we're in a recession that really started last November. Things look awful now, but stocks should bottom out pretty soon."

Diverging opinions

The S&P 500 has been trading at about 17 times normalized earnings for the last five years, adjusted for one-time aberrations. That's fairly low, Engel said. During the booming 1990s it traded at 20 to 30 times earnings.

"Stocks will recover sharply and you could see a run of 10 percent by the end of this year that carries through into 2009," Engel said.

Engel is among those who believe that $100-per-barrel oil is here to stay, but that $140 is an artificially high price spurred by speculators in the commodities market. He anticipates a drop in oil prices that will be good for stocks.

Also, Daughterty adds, a lot of companies, from GE to small alternative energy companies, are going to prosper as industries and governments step up investment in energy-saving products and new technologies.

David Joy, chief market strategist at RiverSource Investments at Ameriprise Financial, believes we're still in the rough.

"We're a ways away from capitulation," Joy said. "There is still some expectation in some quarters that the economy is not as bad as we think it is. We see a couple pretty good quarters coming and then a recession in 2009.''

Joy said it could take up to a couple of years for companies and individuals to pay down debt incurred during the cheap-money, real-estate-driven economy of 2003-06. And the stock market usually starts rising several months before the economy turns up.

"We have to go through a period of repair of balance sheets of the financial institutions and consumers before we can launch into our next period of expansion," he said. "But we've weathered nine recessions since 1950 and managed to live through them and move on."

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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