Thursday, November 20, 2008
Clichés are dying all around us.
We've been told to "buy when there's blood in the streets."
Well, the streets have been bleeding for months, and they're getting bloodier every day.
Warren Buffett, perhaps the best investor of all time, is fond of reminding us to "be fearful when others are greedy and greedy when others are fearful." That advice hasn't been working so well, either.
My favorite dead cliché, however, is "It's a market of stocks not a stock market." This implies that even in bad markets, investors can find stocks behaving well.
Folks, it's not a market of stocks anymore. It's a market of quicksand.
Everything is getting sucked lower. Stocks that were amazing bargains last month are even better bargains today. Investors who bought stocks last month are now struggling to keep their heads above water. And in quicksand, the more you struggle, the deeper you sink.
According to my new favorite book, The Worst-Case Scenario Survival Handbook, the best way to escape quicksand is to do nothing. Thrashing around and making quick movements will only get you in deeper trouble. However, if you do nothing, eventually you'll float to the surface and be able paddle yourself safely to firmer ground.
So as difficult as it is to say it, my advice to you is to do nothing... no selling and no buying.
There's no shortage of investment ideas. In fact, in any other environment, I'd be jumping up and down and shouting about the terrific bargains in this market.
You can buy Intel (INTC), the world's dominant semiconductor company, at less than 10 times earnings and with a 4.3% dividend. General Electric (GE) shares are trading at seven times earnings and yielding almost 8%. Microsoft (MSFT) is trading at $18 per share – its lowest price in over six years. And Alcoa (AA), at four times earnings and a 7.2% yield, is trading for less than it was 10 years ago.
Blue-chip stocks are amazing bargains right now. And if you can step up to the plate and buy them at today's prices, I'm certain you'll be sitting on profits in two years.
But I would have said the same thing last month, and the month before, when share prices were 20% higher.
This is the problem with quicksand. It sucks everything down.
But here's the thing... Hardly anyone ever dies in quicksand. It's true. It's not like the Hollywood movies where unsuspecting explorers stumble into a pit and are swallowed up within minutes. Quicksand has a bottom, and it's often not as deep as you'd think.
I'm betting we can say the same thing about the market right now and about the stocks I mentioned above. So if it feels like your blue-chip portfolio is a giant vat of quicksand, then consider following the advice of the Survival Handbook – do nothing. Soon enough, you'll float back to the surface.
Best regards and good trading,
Another leg down for big banks... Bank of America, UBS, Deutsche Bank, Barclays, Citigroup, JPMorgan, Credit Suisse, and Lloyds TSB hit new lows.
Homebuilder confidence sinks... KB Homes, Lennar, and Centex drop to new lows.
New York City real estate giants SL Green, Vornado Realty Trust, and Boston Properties fall to multiyear lows.
Earnings today... Barnes & Noble, Dell, Gap.