A Little Sleuthing Can Lead to Big Profits

On the short side, his firm has bet against companies whose fortunes are tied to consumer debt. "The consumer has debt over his ears," Williams said. His research leads him to expect a double-dip of recession by the third quarter, and he will be ready for that with shorts of bank and credit-card stocks -- and in particular, Fannie Mae(FNM Quote). However, he is quick to note that his work does not offer timing clues, so many of his positions are held for a long time before they pay off. "We are dealing with the subconscious," he said. "When a down card gets turned over -- that is, when the subconscious becomes conscious -- no one knows. You just want to be ready when it does." He says his firm's published list of about 40 stocks, rebalanced quarterly, has beaten the S&P 500 every year for the past 35 years based on this type of analysis.

I'll keep track of his suggestions and report back from time to time. In the meantime, for a wide assortment of examples of down cards, visit his archive page at his Web site.