Thursday, August 16, 2007
I feel your pain!
As part of the investor class, I am feeling the pain of the bloodletting in my portfolio. I guess it's part of the risk of investing, but its no time for panic. The Democrats will probably blame it on Global Warming or Bush, but the intelligentisia realize its the subprime debacle, in other words "greed." Just like the dot-com crash, the subprime fiasco boils down to the word "avarice." Credit was given to anyone. Banks would securitize these mortgages and sell them to the next sucker. Eventually, like the dot-coms, it had to implode.
The stock market will rebound - it always does, but there may be more bloodletting first. It's hard to grin and bear it, but grin and bear it we must. The savvy investor will start buying more stocks. Country Financial which has become part of the story was rated five stars by Morningstar. I wonder if Morningstar will put it in under review.
As the stocks began its downward spiral, I bought a stock from Ireland, Allied Irish Bank. Ireland is in the process of huge growth. I do believe I bought it too early however, because the subprime issue is spreading and the stock market seems to be in freefall. I will buy more stocks, but I think the market still has further to go. What is happening now can be compared to the dot-com crash in this respect. The dot-com crash did not affect only the dot-coms but it spread to the rest of the economy because the dot-coms were the consumers of other industries. When the dot-coms could no longer purchase equipment, other industries could no longer sell to these failed dot-coms. I see the subprime market spreading to the rest of the economy in a similar fashion. Credit tightens, Mortgage rates rise, and consumers stop buying. I do not believe it will be a recession, because I don't think the subprime issue is as large as the dot-com crisis was. In fact, by the end of the year, I suspect the market will have rebounded.
So what do I think right now - its time to start picking up stocks on the cheap. Stocks in my portfolio which have now ended up in the buying range noted as five stars by Morningstar are the following; (note: These stocks may fall further. It's hard to time the stock market, but these stocks are worth keeping an eye on) The time to buy is when everyone is running for the hills.
Allied Irish Bank (AIB)(Ireland)
Anheuser - Bush (BUD)
Bank of America (BAC)
Berkshire Hathaway (BRK.B)
Cintas Corporation (CTS)
Corporate Executive Board Company (EXBD)
Discover Financial Services (DFS)
Ebay, Inc (EBAY)
Enterprise GP Holdngs (EPE)
Expeditors International of Washington (EXPD)
Home Depot (HD)
IAC/Interactive Corp (IACI)
International Speedway (ISCA)
JP Morgan (JPM)
Mcgraw-Hill Company (MHP)
Microsoft Corporation (MSFT)
Western Union (WU)
Wal- Mart (WMT)
Washington Mutual (WM)
The recent (almost) or correction (if the Dow hits 12,600, it will be recognized as a correction, 10% below the market's high) of the market makes this a buying opportunity. Although one should investigate a stock on its merits, the above quality stocks have gone down to buying territory.
The metric I use to determine the value of a stock is the discounted cash flow method. It is much more accurate than just using the P/E of a stock.