- Anyone buying now and holding for several years is going to have a big win.
Posted on 03/09/2008 6:01:33 PM PDT by BenLurkin
You know that political bumper sticker that reads, "If you're not outraged, you're not paying attention"? It might as well apply to the market these days. Starting in November, stocks started dropping ... and they haven't recovered.
Good -- even great -- companies are being sold down to levels far below their true worth, and investors are losing their savings. It's outrageous!
A shocking and somewhat interesting statistic A whopping 79% of all stocks traded in the U.S. are down over the past four months. That's 5,339 names in the red. Another 3,032 of those names (fully 45%) are down 15% or more. And stocks such as Intel (Nasdaq: INTC), Verizon (NYSE: VZ), DISH Network (Nasdaq: DISH), and even Wrigley (NYSE: WWY) haven't returned a penny for the past three years.
So if you've lost money of late, don't feel bad. There has been no hiding from this downturn.
But let's also be honest: It hurts.
Time to panic sell It's outrageous and it hurts, but what's the individual investor to do? The market is a monolith at times, and it can be hard to sway.
Case in point: Barrett Business Services. I found this tiny West Coast professional employer organization and staffing company during my work as the micro-cap analyst for our Motley Fool Hidden Gems service. At the time, it was trading for a little more than $20 per share. I liked the CEO, I liked the balance sheet, I liked the track record, and I thought it looked cheap.
What's happened since? You guessed right: It's dropped about 25%.
What's your next move? See, the market has it in its head that the economy is worsening and the consumer is weakening. When fears are that broad, everybody gets punished.
Pain isn't reserved for companies that struggle to turn a profit, such as Wind River Systems (Nasdaq: WIND). Companies such as Fannie Mae (NYSE: FNM) that have seen their business fundamentally altered by the credit crunch are also hurting. The market has even stung "defensive" plays like Clorox (NYSE: CLX).
And while losing money can feel outrageous, the most outrageous part about all of this is that even great companies are getting caught up in the chaos. Some of this makes sense (the economy is getting worse, after all), but some of it does not (it won't be terrible forever).
But back to Barrett: It still has a strong balance sheet, it's buying back shares and buying up weakened competitors on the cheap, and it's paying shareholders a nice 2% dividend. Could the stock drop further from here? Of course, but I still think it's outrageously cheap.
And I'm not alone. CEO Bill Sherertz told analysts on the last conference call: "If you guys want to sell [the company] down to five times earnings, maybe I will just buy the whole [expletive] thing."
Enough [expletive] said After backing out cash on the balance sheet, Barrett today sells for just 7.0 times earnings. But that's not necessarily the point. It's suffering along with a few thousand more stocks on the market.
Investors, then, have two ways to express their outrage:
Withdraw money from the market and wait for current market conditions to subside. Put more money in the market and take advantage of current prices to build a portfolio of excellent companies on the cheap. We're all about the latter strategy at Hidden Gems, and we're excited because there are so many more buying opportunities today than there were last summer, when our returns were flying high. Fortunately, investing isn't about short-term returns; it's about making a fortune over the next decade or more.
While market conditions like those we have now can be painful, they're can also help you amass a fortune. So swallow hard, and start buying
Whom the market gods humble they first make proud.
I think we are approaching one of the best buying opportunities in decades. The markets will still go down from here, but when it starts to recover, it will be a boom.
And don’t worry about catching the bottom, there will be plenty of time to jump on board on the way up. Just sit back and wait for the markets to hit around 10,600-10,800 and start to rebound about 5-10%, then start buying.
You may want to believe that is true but it is not. Way to find out is do the work--go order up the real numbers (10Q's) from the SEC; restate the Financial Report to a true historical GAAP.
I am not into spending a lot of time tonight writing a treatise on how we went from core earnings and continuing business earnings and the rest of the obfuscation to avoid saying that the published numbers are not historical GAAP any more.
But they are not. And when you do the work to find the true earnings, you don't find reported earnings.
Look, you are welcome to believe whatever you like. Best of luck.
The represented financial statement earnings are not real-they are fake. And if you take a pencil and adjust them to GAAP, they mostly disappear. There is a reason the SEC has adopted rules that effectively preclude investors from sueing accountants over this kind of problem.
I can direct you to Money Market funds with better rates and better access to your money.
“Unless Bernanke and a Dem president bake us some stagflation. Then we’re all scr*wed.”
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Your first paragraph was right. It IS an excellent time to buy. Anyone buying now and holding for several years is going to have a big win. Even a Dim won’t be able to screw it up.
I like exchange-traded funds that short the major indexes. You can find them within a list at morningstar; they are described as bear market funds.
http://news.morningstar.com/etf/lists/ETFReturns.html
Click on the heading “category” and all the bear market funds will congregate first.
Surviving Socialism Ping
Plumbing is always going to need repair, and people are going to be hanging onto their cars longer. And neither service can be outsourced to Hillary's friends in India.
We needed a plumber just last weekend - so I've experienced this one firsthand recently. People are always going to be willing to spend good money to be able to take a hot shower the next day.
If I was going to invest in a stock I'd be considering the rail company CSX. I'd love to hear what other Freepers think about this one. :)
But I don't care where it's been.
I care where it's going.
And if I knew that, I'd hire Warren Buffet for my butler. Nah ... on second thought ... maybe those Wrigley chicks.
In other words, you have no way of knowing for sure whether the current market is high or low compared to where it's going next.
Don't try to catch a falling Guillotine; wait until you hear the solid thunk sound of it hitting bottom, first.
Then hope that the thundering herd doesn't hear the same sound, because one can never win that way. You want to be where the thundering herd is going to be, before they get there, and then get the hell out of the way before they arrive.
I got out of Tech stocks in the late 1990's, and out of California real estate last week (a year later than I wanted to, but it took some doing.) I've been in and out of gold stocks several times in the last decade, hitting 3 of 4 of the biggest ups, and missing all the downs, quadrupling that portion of my money in ten years.
Right now, I'm looking into some precious metals (silver, uranium, platinum, ...). While I'm making sense of that market, my money is holding nicely, in T-Bills and GNMA's and such. I own zero real estate (not even a home), and zero stocks (other than a few gold stocks, a little bit on foreign stock exchanges, and some under water options from my employer.)
I've lowered my standard of living from a run rate of about $10,000/month, down to about $1,500/month. I'm figuring this could get uglier than Hillary's backside before it's over.
Nah, I will wait until November this year. It still hasn’t bottomed out yet. Another 8%-10% left to go if you ask my humble opinion.
Hey we're approaching bedtime here!
There is a lot more infrastructure and efficiencies in our economy then the 1930’s. A lot bigger and more educated population as well. I will say the floor will be 9,500 but we may see a brief crash of the entire U.S. financial system before we recover.
Here's an inflation adjust Dow, compared to what you'd get on a nice little inflation adjusted annual rate of 1.64% per year.
I do expect the Dow to return to below that inflation adjusted annual rate of 1.64% per year, in my lifetime (I'm not a young man, either.)
Most of us haven't learned to live on the pay scales that will result from this, and from the continuing massive socialization of our governments for the last century, and getting progressively worse.
Nor are most of us prepared to live in a society where two working adults are supporting one senior citizen (well, most of them citizens.)
But the "more educated" part I'm not so sure about. Public schools, and now even colleges, are suffering from some serious liberal rot.
Well, return some of the cash to the shareholders.
“Unless Bernanke and a Dem president bake us some stagflation. Then we’re all scr*wed.”
Distinct possibility. We cut interest rates again to carry the banks, and it will happen.
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