What's interesting is that if you use the dividend discount
model to value stocks, the current low rate environment
gives absurd discount rates that results in even more
absurd "valuations." Nevertheless, these absurd valuations
are being reached, essentially bringing many stocks in
the market to the 5% expected return range, in line with
money market funds. Heck, even the Travelers/Citicorp
merger looks like it gives less than a 5% return on investment.
So not only are individual investors paying the absurd prices
for stocks, but the companies themselves are acquiring
other companies at these insane prices - in stock transactions, of
course.
I do own businesses I like, and I will leg out of them and into
India, Japan, South Korea and other markets that have been
absolutely crushed. But I cannot justify selling at the current
prices. Tricon at 33, Ciena at 48, Hewlett Packard at 67 - these I can
sell, but not until they show weakness, and they all showed
relative strength in today's down market. Deswell at 19, Telebras at
120, BMC at 19, Applix at 6, St Joe at 33, Hyde at 5, Elamex
at 7 - these are clogging my portfolio with longs, and I have no
good reason to sell no matter any weakness they may show.
The Prudent Bear Fund, the Nike short, and initial positions
in the Morgan Stanley Asia Pacific Fund and the India Fund
are the starting points for my US bear strategy.
I'll likely buy more of the India Fund and initiate a position in
the Korea Fund soon.
I already sold off a 88% long US stock/12% cash IRA portfolio,
moving the money into 33% dividend stocks, 20% small caps,
33% cash, 15% emerging market debt, and 15% Japan/Asia.
I just made these moves Monday.
Yep, I'm bearish. I even started a "Bear!" thread here
on SI if anyone is interested. Long candidates I like are
of course Swisher, Adaptec, Jones Medical @ ~26, but
I just can't bring myself to initiate more US longs right now.
Mike |
