I agree with you on all accounts, BWAC, and thank you for your sensible posts. It isn't surprising that Joe didn't answer your questions directly about whether he would sell his business for less than it is worth just because of short term economic issues or a lack of bidders. I had a hard time getting a straight answer out of him as well. In essense, the decision that he faces is exactly the same as what stock owners face, or should be looking at. We are in a period where we know that companies are worth more than they are trading for, but for whatever reason people aren't willing to pay up. This will change at some point.
When the market goes down down down every day, a lot of people start rationalizing that a stock is actually worth less than their cash, or less than the value of their depreciated tangible assets, or less than 0.1 x trailing sales. The same thing happened when the market was sky high. A lot of people rationalized that earnings would go to the milky way, that a company with a few thousand dollars in sales with .com at the end of their name would trade to a market cap that exceeded the GNP of the United States. I am fully aware that emotional trading can drive the market to excesses in the short term. It can even last a few weeks or months. But eventually reason returns. The idea in times like these is to buy companies with good balance sheets, good future earnings prospects when the economy turns around, and cheap valuations. You'll make money eventually. Just don't get blown out on margin before the payday comes. Scaling in to certain stocks like Ed is doing, and like I am suggesting is an investment strategy. It is not a trading strategy. It will pay off...eventually. If you scale in slowly, you will have cash to buy more if things keep going down. When they turn around, you'll have that many more shares on the way up. The bears might eke out another nickle, or dime, or dollar, but the big money will be made long from here, not short.
Kelvin: My point about going back further than one year is that one year does not establish a trend. I realize that we are in a bear market today, but you can't conclude that just because we were in a bear market last year and the market went down during the summer, that it will go down this summer just because we are in a bear market now. Joe's citation of the book on market trends is interesting and more conclusive. But even with that, every year isn't the same. The market bucked the trend some years, and went extreme with the trend in other years, making the average look better. The market has a way of balancing out over a long period of time, so it is possible that over the next 50 years, the trend identified in that book will be completely reversed. |
