Friday, October 10, 2008

Nothing lasts forever even cold November rain

September was awful and October is looking worse. Everywhere I look I see stories about the financial crisis and people wondering if we're going to see another Great Depression. I keep hearing people on CNBC talking about defensive sectors and stocks. This is a totally academic exercise when all equities are getting punished.

There is enough pessimism in the market to choke a horse. So have we reached a point of capitulation? I don't know. I don't care. I'm not a trader.

I've been preach for the last year or so that cash, gold, and Treasuries are fine, so I won't repeat those screeds. Today's post is going to be about psychology. The way to survive this market is change your attitude towards it. Start looking for bargains. Goldman Sachs is trading in the low 80s at slightly under book value. When do you think that will happen again? They are not going down. The Fed and the Treasury have decided that they will "bear any burden, pay any price" to keep the remaining big banks alive. Could it go down further from here? Certainly, maybe even probably, but I'll snap up more shares and wait for the storm to pass.

Another name that I'm looking at is Altria. MO is selling at 4x earnings and under a 1 PEG. This is one of the greatest stocks of all time just being given away. It's also got a 7.1% yield. That's a nice chunk of change while you wait for the market to rebound.

GE is selling at single-digit multiples with a 6% yield. SunTrust Bank is selling under book value. In fact, right now, the cash on the balance sheet exceeds the market cap! It's yielding 7.4%. XOM is in the low 60s. FCX has a forward P/E of 3 and has PEG, P/S, and P/B all under 1. I could go on and on.

I can't guarantee that these stocks won't get cheaper or that ten years from now they will have fully recovered. Anyone who bought GM in the 80s when things really started to look bad has been spent twenty years watching things get worse. So there's always risk, but the risk reward ratio is in your favor when you buy blue chips like these that (unlike GM in the 80s) and hold them until the market comes to its senses.

This financial system is battered right now, but we aren't going back to bartering.


Sanjay said...

Good preaching I'd say. Situation is the same everywhere, includinng here in India. Scrips are trading at multi-year lows.

Interesting fact is that lots of companies here have the backing of some of the finest innvestors across the globe like Warren Buffet, L N Mittal, Rakesh Jhunjhunwala but they are gettinng hammered as if these were being run by some crappy guy next door.

It really is a matter of sentiments and psyche as of now and the strongwilled/stableheaded will come out of it as winners.

I am writing a salvager on my blog too on the same

Free Music said...

good preaching

Anonymous said...

This worked for the remaining 8 weeks (mainly because I never took the band-aids off long enough to go
at it. Your family members and friends should always remind you whenever
they see your fingers in your mouth. Request loved ones and
workmates to let you recognize when your arms are in your mouth.

Here is my weblog :: How to stop Nail biting