Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Tommaso who wrote (847)	11/21/2000 4:50:10 PM
From: prosperous	Read Replies (1) of 74559

Well the arguments for selling in the current market and holding stocks for long haul being debated here need not necessarily be at odds with each other. For example, Ben Graham's philosophy was: -buy great companies (with his definition of what great meant) at discount with respect to their valuation -sell them when the valuation argument no longer holds. In his security analysis, he pondered on the thought of what an investor should have done during the 1929 market time period and the conclusion was to have stayed away from the market if the stock valuations were not something one could agree with (based on my recollection). The current market is overvalued by many measures and that is significant if one were investing in an index that tracked the market; staying into SPY clearly has more downside than upside potential at this point (large growth dominated). However, it is possible and justifiable that there are individual stocks that someone may want to hold that are well discounted through the current downturn and have much upside potential. The disadvantage of staying out is not knowing when to get in unless one's valuation strategies are well defined. The importance of the valuation metric is illustrated by the current oil and gas situation, can one justify buying this based on perceived demand alone? if one did that, we are close to the top situation around fall 1997 and if the sector starts down from here could face similar problems; however if valuation justifies the price then it probably is a good buy. The Motley fool kind of thinking (buy and hold no matter what), while initially useful for a beginner has its limitations and will not work well for many stocks that they have in their portfolio.

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