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Tuesday 29 July 2008
Free Fall - Are You Prepared?
2 comments:
Anonymous
said...
Why Doing Nothing is the Right Investment Strategy
by David Fessler July 24, 2008
Nobody likes watching the stock price of a great company in their portfolio sink into the sunset. But with the market's ongoing case of indigestion, that's exactly what's happening.
So what can you do?
Well, the other night - as my family and I were watching a Seinfeld re-run on TV - the answer hit me.
In this particular episode, George and Jerry were trying to sell the president of NBC on the merits of a TV show about "nothing." (Mind you, they were already IN a show about nothing.)
Right then, I decided to follow their lead and write about… well, why doing nothing is the right investment strategy.
We're well into another earnings season and outstanding companies, which have posted promising results in the face of a flagging economy, are being ignored altogether.
Instead, traders have chosen to focus on any perceived "outlook negativity" uttered during the quarterly calls as a reason to take down a stock.
Doing Nothing As An Investment Strategy
Consequently, prices have been inching further south. But instead of doing something you'll later regret, consider doing nothing as an investment strategy.
You see, this market seesaw will likely continue until the banking capitalization problem is resolved. We need to see fundamental financial underpinnings that calm fears about risk in order for the market to establish a sustained rally.
The good news is that we're starting to see some positive signs:
• Shares of national banks rose sharply yesterday as Bank of America - despite reporting a big decline in second-quarter earnings - still beat analysts' estimates.
• That marked the fourth straight trading day in which a national bank reported second-quarter results that - despite being well off the pace of last year's numbers - trumped analysts' expectations.
• Last week, JPMorgan Chase and Wells Fargo did the same thing.
• And Citigroup's second-quarter loss was smaller than analysts anticipated.
Doing Nothing Could Be Your Best Investment Strategy
So sitting tight and doing nothing in this environment could be your best investment strategy.
Don't get me wrong; with shares of good companies being hammered down through the floor, there are some very tempting bargains and "buys of the decade" out there.
The problem is that in this environment, there's no guarantee that Wall Street will reward your courage to buy with higher prices.
And since we can't time the market - and shouldn't try to - patiently waiting out the choppiness that defines market corrections is a great strategy.
Inevitably, the market will once again look forward and return to fundamentals. Earnings and valuations will matter again. And doing nothing might just be the reason you'll be looking at some handsome gains in your portfolio.
Merrill Lynch’s recent wave of write downs is another sign that after eight years, we’re still only halfway through a bear market, said Steve Hochberg, chief market analyst for Elliot Wave International.
“It’s a process that’s working its way through, but we don’t think we’re near the end of it yet,” Hochberg said. “Bottoms are created when you have the greatest amount of pessimism. It’s a little perverse, but I think people need to get scared.”
Put-call ratios and the volatility index, two measures used to gauge capitulation, have yet to reach levels associated with ending previous bear markets, Hochberg said. The VIX stands in the mid-20s, having briefly hit 30, whereas it read closer to 40 during past market lows.
“I think the VIX can get even above that in this decline,” Hochberg said. “Somewhere north of 40, maybe north of 50 would do it, at least on an intermediate basis.”
But the best measure of market valuation may stem from dividends, because companies simply can’t pay them if they don’t have the cash, he said. On the top day in 1929, dividend yield stood at 3 percent, and the market fell 80 percent. It is currently at less than 3 percent.
“You’re not going to get to a low until valuation levels correct, until sentiment gets to levels where people are scared,” Hochberg said. “I think you’ve got to get to that capitulation stage where people throw up their hands before you put a low in the market.”
2 comments:
Why Doing Nothing is the Right Investment Strategy
by David Fessler
July 24, 2008
Nobody likes watching the stock price of a great company in their portfolio sink into the sunset. But with the market's ongoing case of indigestion, that's exactly what's happening.
So what can you do?
Well, the other night - as my family and I were watching a Seinfeld re-run on TV - the answer hit me.
In this particular episode, George and Jerry were trying to sell the president of NBC on the merits of a TV show about "nothing." (Mind you, they were already IN a show about nothing.)
Right then, I decided to follow their lead and write about… well, why doing nothing is the right investment strategy.
We're well into another earnings season and outstanding companies, which have posted promising results in the face of a flagging economy, are being ignored altogether.
Instead, traders have chosen to focus on any perceived "outlook negativity" uttered during the quarterly calls as a reason to take down a stock.
Doing Nothing As An Investment Strategy
Consequently, prices have been inching further south. But instead of doing something you'll later regret, consider doing nothing as an investment strategy.
You see, this market seesaw will likely continue until the banking capitalization problem is resolved. We need to see fundamental financial underpinnings that calm fears about risk in order for the market to establish a sustained rally.
The good news is that we're starting to see some positive signs:
• Shares of national banks rose sharply yesterday as Bank of America - despite reporting a big decline in second-quarter earnings - still beat analysts' estimates.
• That marked the fourth straight trading day in which a national bank reported second-quarter results that - despite being well off the pace of last year's numbers - trumped analysts' expectations.
• Last week, JPMorgan Chase and Wells Fargo did the same thing.
• And Citigroup's second-quarter loss was smaller than analysts anticipated.
Doing Nothing Could Be Your Best Investment Strategy
So sitting tight and doing nothing in this environment could be your best investment strategy.
Don't get me wrong; with shares of good companies being hammered down through the floor, there are some very tempting bargains and "buys of the decade" out there.
The problem is that in this environment, there's no guarantee that Wall Street will reward your courage to buy with higher prices.
And since we can't time the market - and shouldn't try to - patiently waiting out the choppiness that defines market corrections is a great strategy.
Inevitably, the market will once again look forward and return to fundamentals. Earnings and valuations will matter again. And doing nothing might just be the reason you'll be looking at some handsome gains in your portfolio.
Good investing,
Dave
Market Only Halfway Through Bear Period
By Krystina Gustafson | 29 Jul 2008
Merrill Lynch’s recent wave of write downs is another sign that after eight years, we’re still only halfway through a bear market, said Steve Hochberg, chief market analyst for Elliot Wave International.
“It’s a process that’s working its way through, but we don’t think we’re near the end of it yet,” Hochberg said. “Bottoms are created when you have the greatest amount of pessimism. It’s a little perverse, but I think people need to get scared.”
Put-call ratios and the volatility index, two measures used to gauge capitulation, have yet to reach levels associated with ending previous bear markets, Hochberg said. The VIX stands in the mid-20s, having briefly hit 30, whereas it read closer to 40 during past market lows.
“I think the VIX can get even above that in this decline,” Hochberg said. “Somewhere north of 40, maybe north of 50 would do it, at least on an intermediate basis.”
But the best measure of market valuation may stem from dividends, because companies simply can’t pay them if they don’t have the cash, he said. On the top day in 1929, dividend yield stood at 3 percent, and the market fell 80 percent. It is currently at less than 3 percent.
“You’re not going to get to a low until valuation levels correct, until sentiment gets to levels where people are scared,” Hochberg said. “I think you’ve got to get to that capitulation stage where people throw up their hands before you put a low in the market.”
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