Wednesday, August 01, 2007

Bear Market! Sell! Sell! Sell!

A Dash of Insight: Fundamentals and the Market:
"What has happened in the last week has little to do with the valuation of most stocks. We find many attractive buys on our 'watch list', and we have added to our positions."
I was trying to be a little funny with the title of this post. Yes, the past week has seen my portfolio diminish in value by a substantial amount. Yes, this has made the little gremlin of fear that lurks deep in the dark crevices of my mid-brain come clawing to the forefront demanding that I liquidate my stocks and put my savings in something less volatile.

But no, I don't put much stock in those who claim the stock market has reached a top. In the long run, as a wise and wealthy investor has noted, the stock market is a weighing machine: the price of a stock is a function of how much money a company earns. period, full-stop, end of story. American businesses are earning record amounts of money, and projected earnings are strong. Inflation is relatively tame. And most importantly the price of stocks remains low relative to bonds (see the Fed Model).

So that's how I see it. I regard this recent sell-off as a temporary blip, and I expect the market will back above 14000 before the end of the year. I've added to my equity positions and I will continue to buy into this bear market until my cash reserves run out or the market rebounds, whichever occurs first.

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