The Fear Is Palpable. Time To Buy. 19 comments
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Thursday was lovely day in the stock market. The fear is palpable. The Fed whining is deafening. Bernanke doesn't seem to care that much, and maybe he shouldn't. It is not his job to worry about stock market psychology. It is his job to keep the economy afloat and stave off inflation. If easing 100 bp Friday will help accomplish that, then he should do it - but not for any other reason.
That aside, let's tell it like it is. The market is terrified, and who knows how low it can go near term? Value temporarily means nothing. Eventually, value means everything. Don't forget it.
I am not terrified. Yes, my portfolios are declining and I have been losing money. Or have I? I am not selling. I continue to be confident in the long-term prospects of the businesses I own, and their valuations are better than ever, implying less risk of permanent loss.
Take a deep breath, close your eyes, and ask yourself this: "If the market had been closed for the last 3 months, would I be worried about the companies I own? Would I be scared or depressed? If Mr. Market wasn't telling me that I am losing money, would I be worried about it?" If you own quality companies, you should be unconcerned by Mr. Market's manic depression. If you were a private investor in private companies, you would not be thinking about getting out because we might be heading towards (or even already be in) a recession. You would realize that recessions are a fact of life, they average about 10 months long, and then things start looking up. And, you would know you were in it for the long term. You are an INVESTOR.
The flip side here is that if you own companies with questionable long-term prospects, and/or companies with very high valuations, then you should be concerned. It is those situations which lead to permanent loss of capital. See: internet companies and bond guarantors. If you have suspicions about some of your holdings, get out even if they are down a great deal.
It's times like these when it is so important to have confidence in your assessment of your companies' quality and intrinsic value. It is also a good time to refer back to the teachings of Value Investing's equivalent of Yoda, Ben Graham:
The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.
Rejoice - there are literally TONS of good companies out there on sale - once in a decade - or longer - sales. Put 'em in your IRA and forget about them until the next time the market gets frothy.
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This article has 19 comments:
continually falling house prices represent a contraction of credit.
much of the economic growth for the last few years was directly from the housing and condo construction industry. these industries have slowed, but are still building faster than demand is increasing, so more jobs will be lost here.
domestic autos will continue to slide as tighter credit makes them harder to buy and fuel efficiency concerns will make them less desirable.
this will be a full blown recession, with increased company failures, higher unemployment rates, and truly excellent buying opportunities in the emerging market and renewable energy areas.
I think the average investor should preserve capital, and use a tight stop-loss, and get back in later.
But I think there are some very strong elements, which may cause the Big Money to switch side, and cause a violent reversal any time:
(a)The US subprime issues may not affect significantly the growth stories of the rest of the world. The growth environment in India and China are overwhelming - one has to see it to believe it. I have been to India, and my close friend has been to China multiple times. The stories in Brazil, and Russia are probably similar. The summer Olympics is going to intensify activities in China, and statistics show that on the average, the market in the host country gets hotter after the Olympics.
(b) The subprime issue may be overblwon by the Big Money shorts for making profits. Certainly, there are some some companies in the financial sector are in real danger, but most others will come out fine - may be stronger. The big bankers are possibly writing off much more than they should, which may cause spike in profits in future. I have been active in real estate for 30 years. We hear about falling house prices, but over last 5 years, the vast majority of homeowners are sitting over a hefty appreciation. The houses may not be selling as quickly because of the negative psychological environment, and also prospective buyers are waiting for more bargains.
Anyway, one should be very careful, but nimble to be able to change on a dime.
If you think there is a near term bottom soon I believe that is entirely possible. There should be at least a few sucker rallys on the way down. It won't go in a straight line.
Now the Fed probably don't profit from their statements, while the pandits probably are sitting on their shorts, and will profit from further down slide of the market. So, I would think that the Fed is probably correct, and we will have a slo-w-w growth economy, though the sentiment, and big money manipulation can take the market down further. Being a trader, I would try to stay nimble here, I try to make a buck either way, but would love to see a violent upswing, followed by a steady uptrend ! I see a majority of the commentators here may be in the recession camp !! That may be good news !!!
I am not a stock broker, I do not get paid by the stocks I recommend. I follow Graham and Buffett strategies and they've paid off.
This kind of environment is where the true investing stars shine brightly, and both myself and my clients are thriving in it using INTELLIGENT INVESTING.
Regards,
Ryan
freundinvesting.com