Jay,
A couple of questions first....
1. Are you a short term trader, investor, swing trader, etc? How do you categorize your particular investment strategy?
2. What kind of stocks do you have in your portfolio that has taken this beating? High flying PEs, or quality blue chips.
Overall, the market seems to be shifting. High flying PEs which were tolerated and promoted for a few years have been cut. People no longer want to own stocks. They want cash. In an environment like this, perceived value changes. The quality of the companies might not, that is fundamental business might not change more than a few percent, but what someone will pay for a stock, pe, bookvalue/p, etc. all change. When 17 or 19 x earnings was reasonable for a tech company, people no longer will pay that 15, 14, 13,12, 9, 6 whatever it is, people adjust their perceptions of owning stocks down. And the further the market corrects, the more this results. It becomes a bit of a catch -22. Just like the upside tears.
Asia is no joke. They have serious, serious problems. But the market is the great discounter. In some stocks, especially tech because of their exposure to asia, corrects have already been severe. I was looking at a bunch of stock more than 50% below their year highs, less than 2 months ago....mind boggling the amount of money lost. given the greater percentage of tech stocks that I own, I have DEFINATELY felt this correction.
Nonetheless, me, I, myself look for opportunities in a mess like this. Sure cash is king and if you could guarantee me the bottom, I would sit on thesidelines and wait till you raised your flag. My feeling is that when investors envision the worst case scenario for asia and its effects, the market will just about price this into stocks. I think just the past few days we have started to feel the effects, but I don't think we truly appreciate the risks yet. I am also concerned that even with some tech stocks that have gotten clobbered, the overall market, the index, the IBM, LU, GE, DELLs etc. have barely corrected. Infact we are only a few hundred points from recordhighs. Imagine if the dow dropped another 1500 points, imagine where even this beaten down already stocks would go by association. You CAN NOT move higher when the down is down 140 unless you have some cure for cancer.
Anyway, amist all this gross tech wreck, there are opportunities. Opportunity is not buying some 28 stockthat has a year high of 35 and in its prime, with all 8 cylinders clicking, was earning 9cents per quarter, but is expected to make 15 next quarter. To me that is a stock waiting for disaster. I personally am buying only the highest quality tech companies. Those with large revenues, better management and great earnings potential. DRAMs, a percent margin or so, not for me. But give me someone that when this bug passes over can make 20% or 30% EPS growth or ROI and thats my kind of company. Clean, immaculate balancesheets are critical also. basically, think of it as if you were buying the WHOLE company. Use the same standards.
Great management is important. Individuals with street smarts and an understanding of how to guide a company , not through good times, but rough times. The guys who hack out xx jobs and xx plants immeidately, without delay and emotion. These managements will reduce costs and make the company more efficient and better able to handle a turn down. Remeber, there are two components to an income statement, revenues (which will be down) but costs which if reduced to a greater extent than revenues could actually result in an uptick in earnings given lower revenues. Then imagine if business turns back up, given the new efficiencies the additional profits that could result.
I don't think you have seen the last of any selling. In fact, I am a bit concerned that wemight open to the upside and then sell off hard. But I am a true believer in the US's dominance in tech and healthcare. I don't think the world will turn to chaos and that I will be hording cash under my matress. Nonetheless, the recent turmoil in the world markets will cause a shake out that the choosy and patient investor should gain from.
Personally speaking, I think someof these 50, 60 80, $100 tech stocks could get smashed. A $100 tech stocks comes down to 75 in no time with a downturn. Then again, these stocks are 100 because they are some of the best. Tough call, I am more a bottom fisher of quality in a market like this. I just don't thinkthey have gotten around to the 100 stocks yet.
If you have any specific questions, please ask. I dont like and really wont speak to specific stocks but might depending on the question.
Regards,
Steve@yamner.com |
