How to Tell If You Were a 2005 Winner

Valero(VLO) and Apple(AAPL). There's a pair. They were the two biggest winners in the S&P 500, both up 128%, and I believe the biggest question you must ask yourself if you own stocks is, why didn't you own these two? Isn't that the test of a good portfolio?

Let's tackle Apple first. I believe the biggest reason people didn't own Apple is because it moved so much already the year before that it didn't seem conceivable it could do it again. Frankly, you are forgiven if that was your reason, because the stock was up 201% in 2004. That's too eye-popping to believe there could be a repeat.

But behind the repeat is a story of brand and brand extension and competition that pointed directly to a possible repeat if not, I dread saying this, a three-peat. Apple figured out kids, it figured out cool and it figured out advertising. It executed flawlessly and it became what Sony(SNE) was to my generation: the only brand that you felt good about buying. Throughout the year, Apple was expensive as all get-out. That, however, is always a poor reason to dislike a stock if you are in the performance game, because best of breed is going to be expensive per se. Suffice it to say that owning Apple was a test of fortitude, and most didn't have it.

Valero's the opposite of Apple. It was cheap all the way. It never got expensive, it still isn't expensive. The refining business has been a dog business all my trading life -- that's right, my whole life. The idea that we could ever be in a position where at last refining wasn't horrible was inconceivable to almost everyone, except for those who had been wrong about a turn in refining for years and Bill Greehey, the chairman, CEO and one of the great businesspeople of our lives. Greehey figured out the tipping point where there was no new capacity coming on and when there could, at last, be an explosion in margins, and what he did was go buy the next biggest player out there to take advantage of it. If this were blackjack, Greehey split two aces and got two kings.