The Dow has now retraced a full 20% since October 2007 highs signalling officially that we are in a bear market.
Oil prices at $140 do not help matters. The credit crunch is not over yet and the housing crisis has now spread fully from the US to the UK. Consumer confidence at an all-time low. Equities will be further buffetted in coming months by the real risk of increasing interest rates and inflation worries which raises serious concerns about corporate earnings outlook. So we can forget about any appreciable GDP growth, especially in the OECD economies.
I do not expect any meaningful recovery until next summer. The result of the US presidential election will have an impact - will the new president support Israel attacking Iran ? Will the White House become more constructive in relations with the rest of the world and especially OPEC countries Iran, Venezuela so that more oil can be pumped into the market to ease supply worries ?
So What should the value investor do ?
My answer is this : We should hold on to our stocks.
Go to "sleep" mode and assume that the market is closed for the next 5 years.
If you have some cash pick up some Starbucks, Bank of America, General Electric, Cisco, Microsoft, Coca-Cola, Gannettt, JP Morgan, Berkshire Hathaway, GlaxoSmithKline - all trading in bargain territory.
Also Look at exchange-traded funds SPY, QQQQ, SMH for some diversification etc
Look for clean and healthy, cash-rich balance sheets. Beware of falling knives like Citigroup unless it drops to $10 :))
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2 comments:
Thank you Timelink, this is a good motivation for all of us. We were discussing last two days KO too. We think, it is a very good buy right now - the cash is massiv, assets to liabilities are stabile and they also have the buy-back plan.
We think about GE again and BOA, however for BOA we wait after publishing Q2 by July 21st. Maybe it will go below $19 :-), but it is good for all long term investors, over next 5Y. We said, we will wait at least until end of July - if we follow some other advices - even by end of August.
Yes Plamena, we were dead right about BAC dropping below $19.
I bought 100 shares @$18.78 yesterday. hopefully we will report in-line with the forecast next week and the dividend will not be cut.
I am already overweight in financials but nothwithstanding my plan is to keep dollar-cost averaging down on this stock and keep re-investing dividends till the financial crisis is over and thereafter....Cheers
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