I couldn't agree more. The largest of large cap stocks are near their highs, while everything I look at is down 30-50% from 52 week highs. But this is what separates the investors from the traders. If you have a Buffett approach to investing (and aren't managing $80 billion), you look at each investment as a business. Would you buy the whole business for the market price? Remember, under this approach you couldn't care less about the size of the company, within reason (below $100 million, you're arguably playing a different game). But don't bother with this approach if you are worried about what drives the stock up tomorrow. If you're thinking that way, don't waste your time doing research. Buy GE.
Take USEC for example. I make no promises that the stock is going to do anything for six months until the market gets comfortable with the story. But it is still an outstanding investment IMHO. Why now? Because in this market a lot of these things that show no near-term catalysts do end up moving tomorrow. Just take a look at Betz Dearborn today. A dog yesterday, a double today.
We are in a mania right now. A value investor has to fight the urge for greed and absolutely cannot join the party now by investing in the big overvalued names (MANY institutions which call themselves value investors are doing exactly that, because their clients are demanding it - but the moment these stocks crash, I think these "investors" will forget what they told their managers to do - I really believe that that "value" "investors" throwing in the towel under extreme pressure are driving this extreme divergence). The alternatives as I see them are to get out alltogether, or to completely ignore the crowd and buy what's cheap - not relatively cheap, but CHEAP, because, amazingly, there are a lot of cheap stocks out there. But don't kid yourself. If the big names crash 40%, you will lose a lot of money in the New Hollands and the like no matter how cheap they look now. In the early 70s, the smaller cheaper stocks actually lost a lot more than the "Nifty Fifty" in the bear market. Personally, I am about 40% in cash and another 20% in high dividend stocks (7%+ yield vs. 1.7% market dividends) because I do believe dividends and cash are the only thing that will protect me when this bubble bursts. Will net-nets hold their own in a bear market? I suspect they will, but I have no historical analysis to back any reasoning up. Why should I think they will trade rationally in a deep downturn when they are not trading rationally now? Don't mean to scare you, but I think we are in Dutch tulip mode right now. And that's not a response to the last two weeks. I did all my selling near the peak of the market (though well off the peak of my investments.) Be afraid...be very afraid.
Jim |
