InvictusRose

Fundamental Valuation: How Low Could We Go?

I agree with most of what you say. I began investing in 1982 with a Dow below 800 just before it took off in August of that year. It had lingered there for about a decade.

So, perhaps a little perspective on things might help. When I started out, it was considered wild speculation to buy a stock with a PE above 8 and a P/S ratio above 1. Those valuations belonged to only the very best companies available. You'd be hard pressed to find anything selling at those ratios today.

Things have certainly changed and I've made a lot of money because they have over the years. But the question at hand deals with how low the market can go, and less forthrightly, are we there yet?

Well, let's take for example, a widely-traded and particularly unspectacular stock like Yahoo (YHOO). It produces nothing proprietary that another company could not do as well or as cheaply. In fact, it offers no real "product" per se at all. It pays no dividend, and it completely dependent on advertising from companies that will almost certainly cut their budgets in any coming slump.

Yet, despite it's current price being far less than half of what it sold for in the last 52 weeks (-56.5%), it still carries a PE near 18, a forward PE over 24, a P/S of 2.5, and a book value that values the company at below its current cost at $8.4. There's more if you look, but those are the highlights. finance.yahoo.com/q/ks...

I could do this all day with most exchange traded companies, including REITS (who says the real estate market is in bad shape?), consumer computer companies that make products that people can and will live without when given the choice of food on the table, gas in the car, roof over their head, or the coolest cell phone on the market.

So, can the market go lower? Of course it can. Can it stay lower for a very long time? Certainly. It has. It did. And furthermore, it's long overdue for a long, long sleepy time.

As long is everyone is quoting old chestnuts about "buying when blood is running in the streets," remember another old chestnut: "When nearly everyone bets one way, go the other." Right now, the so-called "smart" money is telling everyone that we must be near a bottom and should be loading up on stocks. And that includes Warren Buffet. I'd call it a market bottom too, if I could invest in Preferred Shares paying a 10% dividend, along with the right to options at current prices, at some point in the future when the stock is likely to be higher. That's a sweetheart deal we'll never see. So Buffet has a motive for seeing you throw in with him. Only you won't get his deal or his return.

Good luck to all.