Stop and Focus!

Those are the words business guru Michael Gerber uses often when expressing to the up and coming entrepreneur what he should do almost always. “Stop. Focus!”.

I want you to consider stocks. Not because we are going to buy, but just to get an idea of how perception, risk and reward aspects have altered over the past few months.

When we shorted the Dow at 13,00 and then again at 14,000, we did so because stocks, in every major form, were a losing proposition.

Technically, they were being overbought and overvalued on every level. The run from 10-14,000 was simply unsustainable.

Fundamentally, they offered a dividend yield that only a madman would accept, especially considering the downside risk they entailed. Book value was high, earnings were equal to historic highs, and thus p/e ratios were both high and overstated.

Sentimentally, people still couldn’t have been more optimistic on stocks than on any other asset class. Analysts kept proselytizing for higher prices, (one even dared to promote Dow 16,000), 401k’s continued to get their monthly distributions, and for the most part risk was entirely priced off the table.

Economic foresight was warning of a serious downturn in the economy, one which would definitely hurt earnings, possibly wiping out companies altogether. But no one cared to notice, saying that the nay-sayers were the same people who had missed out on the 4,000 point rally altogether.

So we had no other choice, and we did what we always do when people are pricing out something which seems inevitable. We shorted.

Now fast-forward almost a year and a half later…

Technical analysis has virtually no meaning today, which we would consider a good thing! This means that people should start focusing more on fundamentals.

Notice I say “should”. At 7,000, the Dow now offers a dividend yield of 4.5%. That itself in such an economy should whet investor’s tongues. Sure there will be many more corporate bankruptcies, but hold a conservative basket of interest bearing stocks and the future is due to be rewarding.

As earnings have plummeted the 17.5 P/E ratio seems almost too conservative. With debt being paid back book valued and balance sheets have improved drastically as well.

Unfortunately, most speculators are paying little attention to fundamental value, but rather to price motion. Sentiment has worn down and has little additional resistance before the market enters panic mode and we see a final capitulation from the share market. This bear in mind would mark, a definite bottoming process.

It should be noted that markets do not bottom in a day. Unlike their Topping counterparts, the trough could take months to form. This offers just enough time to drive the last speculators from the market and allow investors to position themselves properly for the coming multi-tier bull.

So have we seen the bottom? No. Have we seen the worst the market has to offer? We think also no. But one thing is damn certain. Someone who wouldn’t have touched a share for years may suddenly be having a change of heart.

Yes Gold, Silver and Short-term cash is the place to be for right now. But keep your other eye on the ball! One of the greatest equity investment opportunities, possibly over the next 35 years, is just around the corner!


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One Response to “”

  1. edzillion Says:

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    If you go to the graph foundry page you can customise and then embed various commodity and precious metals graphs.

    Just thought you might be interested…


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