Seppo, I've not read much Neitzche. The bit that I did have a look at seemed less a cogent body of well reasoned thought than a collection of clever, arrogant aphorisms, but to be fair perhaps I missed the best part. I have read a few plays though. I've always liked this one. "As the history of the world proves, the truth has no bearing on anything. It is irrelevant and immaterial, as the lawyers say. The lie of a pipe dream is what gives life to the whole misbegotten, mad lot of us, drunk or sober" from The Iceman Cometh by E. O'Neill. Of course the speaker is a drunk and should not be taken too seriously. As for muddling through, we do what we can. Maybe the best we can hope for is to become excellent muddlers.
So, what's the truth of the market place. I'm looking at one or two year lows for some tech stocks and taking into consideration that following the last two corrections many companies proceeded to rise 200-500% in less than a year. I don't want to miss it the next time. This one's different though. Earnings growth could be much less next year. Maybe there won't be any growth. I heard on the NBR the other night that in October growth for this quarter was estimated at about 12.5%. Now it's about 9.5%. Read the other day that GDP for 98 could be 2-2.5% higher. I think that it will have risen 3.6-3.7% at the end of this year. For those who take the PEG route where stock price is proportional to growth in earnings, that's a big difference, even setting aside the question of historically high valuations. On the other hand many profitable tech stocks are 50-75% off their recent highs. How much is enough? 80%? 85%? Surely not 90% unless a world class depression is upon us. Even then not right away or all it once. They go up, they go down, they go back up. From Edwards and Magee in support of chart interpretation:
" One share of United States Steel was worth $261 in the early fall of 1929, but you could buy it for only $22 in June of 1932. By March, 1937, it was selling for $126 and just one year later for $38. In May of 1946, it had climbed back up to $97, and ten months later, in 1947, had dropped below $70, although the company's earnings on this last date were reputed to be nearing an all time high and interest rates in general were near an all-time low. The book value of this share of U. S. Steel, according to the corporation's balance sheet, was about $204 in 1929 (end of the year); $187 in 1932; $151 in 1937; $117 in 1938 and $142 in 1946. This sort of thing, this wide divergence between presumed value and actual price, is not the exception; it is the rule. It is going on all the time..."
In 1974 young Intel lost about 85% of its value over six months. Six months later it had regained the loss. What happened? Earnings dropped from about .28 to .18 per Q over 3 quarters. By the .18 quarter the price had already recovered. When was the price the lowest? Just before release of the .28Q earnings. So as earnings fell for three quarters the price rose.
My approach in this downturn, which is ALWAYS subject to revision, will be to watch the charts and indicators carefully, pay attention to the news and companys' prospects, take a chance when it looks right and cut my losses fast when it goes wrong. I'm sure my mistakes will be legion; I hope that by keeping them small and offset by some successes that I can make a little money and eventually stumble into a few very good entry points. I'm going to be one hell of a muddler. I hope I can be a good one. It's interesting to note, by the way, that the bottoms of the last two corrections coincided with the end of earnings periods.
Any other muddlers out there? My approach is ALWAYS subject to revision.
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