<<Stocks lead and earnings follow.>>
Yes. I'm not worried that stocks look overvalued based on 2001 or 2002 earnings or sales. These are trough numbers, and investors who stay out of stocks because of current condions, are going to miss the turn. It does, however, worry me when stocks are overvalued based on my guesses for 2003 results. That's a stretch. When I see that, my grip on a stock gets looser. As a general rule, I'm using 1995 (=last pre-Bubble year) valuation ranges (PE, P/S) as my yardstick.
<< The real issue for me is do we see no meaningful 6 to 9 month or longer rally phase before all of the valuation, debt, and quality of earnings inaccuracies all are purged from the markets?>>
IMO, this is a sector by sector situation. There is no substitute for looking at that question, sector by sector, and company by company. Because, for some, the "bleeding and purging" is done, or nearly done. But, unfortunately, there are nations, industries, and companies still (still!, two years into the Bear Market) that haven't acknowledged reality and taken the required dose of purgative. And everything that will eventually be flushed, hasn't done so, yet.
Specifically, unsustainable debt loads still bedevil many. From Worldcom to Argentina, we see "damaged goods" that haven't hit bottom yet. Cash is king, and I hold nothing that has any significant debt. Most of my holdings are like CSCO (cost basis 14.7), sitting on a mountain of cash while their competitor's debt ratings get (repeatedly) downgraded.
My current opinion is that the Nas has entered an extended sideways trading range, which will last for years. Valuations create the ceiling. Gradually improving fundamentals (overall), liquidity, and low interest rates will create a floor. The firm floor is clear, from the 10/98 and 10/01 double bottom. The top is less certain. But, given the volatility, I'd guess the ceiling for the Nas is twice the trough, (=very roughly, 2800). We'll do a random walk within that range; I don't think it's possible to guess the timing of the intermediate-term rallies and dips within that broad range. So I'll just continue to:
Buy the dip
sell the rally
repeat
repeat
repeat. |
