First posted on October 2, 2008
Just because a stock looks cheap doesn't mean it can't go lower.
With General Electric (NYSE_GE) trading around 22 1/4 today it looks cheap, but can it go even lower? The
answer is yes. The last time General Electric traded at current levels was back in October of 2002. Now add in inflation and General Electric is even lower today than it was 6 years ago!
Despite the fact that Warren Buffet invested 3 billion dollars in GE preferred stock giving him a 10% yield, I see no reason to buy GE. The deal Mr. Buffet received was a deal that every investor would love to have in their portfolio. The bottom line is the trend for General Electric which is on the downside and it shows no signs of turning around at this point in time. I would rather buy General Electric at let's say 30, knowing that it's going higher than trying to pick a "value bottom."
Watching CNBC this morning, Mark Haines who has been around for a long time in the financial world made a statement that the buy and hold strategy is no longer a successful strategy in the stock market. I have long held the belief that the world has changed and you can no longer just buy a stock and hold it forever hoping that in long-run it will go higher. We only have to look back at a recent blog commentary on General Motors (NYSE_GM) to see that this is a flawed strategy. Looking at General Electric today proves once again that we are in a trading world and not an investment world.
I understand many of you will disagree with that statement but the truth is the markets have changed, not just domestically here in the US, but globally. Now, the US has to contend in a competitive way with China, India and Russia. The US is in a much more competitive world, where fortunes will be made and fortunes will be lost.
At MarketClub, our mission is to help you make money in this ever-changing market. We are still waiting to see what the outcome will be from the rescue package, bailout package, save America package, any name you want on it package.
No one is going to be able to predict what will happen to the market, except the market itself. We've talked about this in the past. The market is the ultimate mechanism for price discovery.
I do not believe that the current global economic slowdown is going to turn around any time soon. I don't expect to see a "V bottom" in the stock market and that "demand destruction" will force a retracement in many markets that were very much in demand just a few months ago.
So here's my advice... the one thing we do know about the markets is that they a reflection of human nature. Having said that we would want to pay attention to our "Trade Triangle" technology. Those of you who are MarketClub members, follow the "Trade Triangles" because they will keep your emotion out of the market and show you which way the market is headed. For those of you who are not MarketClub members, you should be looking at some sort of technical analysis to help you avoid stock meltdowns.
It doesn't matter what markets you trade because there are always opportunities to make money in the trading game. Our mission is to present those opportunities to you in a very easy way to understand.
Every success in what can only be described as an interesting, turbulent and opportunistic time.
Adam Hewison
President, INO.com
Co-creator, MarketClub
The game has changed so much over the past five decades, that all previous notions of 'appropriate' P/E ratios and Earnings Growth rates are out the window.
As long as workers from other countries are willing to work at lower wage rates, for a given level of quality, American consumers will gravitate quickly to products with better 'value propositions'.
Additionally, our recent growth spurt was largely led by unsustainable levels of credit growth, particularly in housing. And these houses were much larger with inferior quality.
Sooner or later, larger homes with cheap insulation means increased heating/cooling costs and maintenance costs. And inferior quality means unproductive 'rework' and replacements.
All in all, increased energy costs and rework means a less productive America. GDP presently does not account properly for thse 'leakages' to our standard of living, which is what economies should be all about.
The last component for a 'worse off' America is our burgeoning civil bureaucracy, by far the least productive labor force. Add to this under productive sivil service labor costs are the outrageous benefits, particularly retirements.
Jason I certainly don't mean any disrespect, but if you are listening to what the people on this blog, Adam included, have to say, then you wouldn't be loading up on Mutual Funds.
Here is one piece of advice that will save / make you more money in the markets than any other.
Nobody has more interest in your money than you do. That includes your stock broker, mutual fund manager, hedge fund manager, your mom, and your best friend. You must manage your own trades.
There is still plenty of downside in this market. Your thought that there isn't enough sellers to overcome buyer support discounts the absolute fact that markets were so drastically over inflated by money that people really didn't have. This includes the mortgage backed securities markets that have crippled the nations largest investment banks and the worlds largest insurer. These "derivative" markets are the functional equivalent of lending money against borrowed money, and this is why the governments plan of saving the banks, AIG, GM, and any other business that should go bankrupt is only going to prolong the demise of the markets.
I really hope you take this to heart, and pull your money out of the Mutual funds. You CAN go long this market, certainly the pharm's and food companies are holding up. However, the train is still headed down hill, and the choice is yours to either try and stop a run away freight train, or to climb aboard.
My Best To You,
Steve
recordpricebreakout.com
longer term trends (monthly) change only when the less long (daily) trend changes. daily trends in today's highly volitile markets are not quick enough to be useful trading guides. i find hourly trends are a good improvement. no trend system (history) can do more than improve your odds of being right. if you are wrong, get out! hank
So many of you listen to CNBC and spew the same damn rehtoric pretending to actually know something. There is so much self-fullfilling prophecy out there. If you want you could call it insider trading as everyone is saying the same things so of course they are going to trade the info the same. If everyone truly believes the hog wash then it will happen and that is what we have in the markets. Everyone is shorting and selling and the selling should have dried up but it hasn't. Why? The media! If we didn't ha ve the so called experts saying Armeggedon their would be no reason to keep selling. Analysts keep downgrading, which only gives short sellers a chance and direction to go after. We know things are bad so who cares anymore? Why downgrade Apple? It is pointless, they are not going bBK and they are still the leader. People are still putting money in towards retirement and I want to know where that buying pressure is? 6000 DOW is to a point where the buying has to take hold as theiur is not enough people w/ shares to continue outselling the buyers. It definitely makes me wonder what is going on. Seems pretty fishy to me. If you don't have shares if the pansies are all out of the market who are the continued sellers? If it truly is short sellers and short ETF's than why hasn't the SEC stepped in? It doesn't cost a dime and allows people to build confidence. The current system isn't allowing anyone to build confidence. It is however allowing those profiting on the demise to continue their successful trading schemes of scare tactics. Short, get a short cover rally and re-short. Continue to scare investors from buying so their are no suprises for their methods. Again though where is the buying pressure from people like myself still loading up in Mutual Funds and EdVest Accounts? That is what I want to know? If you didn't sell at 8,000 you can't tell me millions are now deciding to sell. Die hards are holding on and this we need capitualation to recover is ridiculous. The market has had mass exodus already their are not enough sellers or (people in the market period) to get as volume capitulation.
Times like these are a tremendous vindication of one of your core principles: Determine the major trend of your market with a device such as weekly/monthly trade triangles, and do not bet against that trend. However, It seems to me that your daily triangle system needs to be refined. Your videos highlight some spectacular successes they have produced, but I suspect these are negated by the many whipsaws that they produce. If you have a statistical study of this or a response to my concern I would love to have you blog it. I feel that you need to find a way to reduce the number and improve the predictive power of the daily triangles.
I wish every individual investor could watch and understand the trade triangle technology. While I use the triangles along with other indicators and chart patterns, if a person were only to solely depend on the triangles, then nobody would be facing losses over >50% in their investment / retirement accounts.
I honestly believe that every person in this country could use this technology to manage their own 401k's / IRA's, and significantly outperform the funds from which they are forced to choose.
If you know any single person who is stilling clinging to buy and hold, or depending on their broker to manage their accounts, PLEASE PLEASE PLEASE send them to this blog. The education is free and I believe invaluable.
-The Trade Detective
recordpricebreakout.com
I am a nervous bear, due largely to the trade triangle algorithm. I don't think 6500 is a bottom. At the same time, I think there's an explosive bear-market rally being gathering steam. There is a lot of money tied up in treasuries and bonds and bank accounts and other instruments that could cascade into the market in a heartbeat. Since that's my take, I am modifying my strategy. Not so much looking for the -100 weak sisters to short, as I am looking for the best +100 stocks to buy, with tight stops. I plan to dump my shorts and risk about 30% of my pot on stocks in energy, financials, basic materials, health care, and agriculture.
Ralph I like your thought process. My question is why you wouldn't include commodities in your strategy. Adam has shown clearly that diversifying across commodities can be hugely profitable. Add to that the imminent inflation we are facing, the pending drop in the US Dollar (it can't go up like it has been forever), and commodities should be set to rally.
your thoughts?
Many thanks for your interest, Detective.
When I say I am interested in agriculture, energy and basic materials, among other investments, I AM talking about commodities, really: oil, zinc/copper, fertilizer, wheat and corn, for example. Actually, if it wasn't for what I have learned here from Adam (go with the trend, diversify, use stops) I would be totally into agriculture.
As you probably know, both Jim Rogers and Marc Faber have encouraged traders to learn to farm. Rogers is buying raw land in Brazil and Canada and converting it to farm land. Rogers says it will be farmers, not Wall St traders, who will be driving the lambourghinis in the future. :-o)
In a truely dark bit of advice, they are encouraging traders to get out of the cities because they see a period of serious social unrest coming. Something to think about.
Ralph has hit five of the top five investments opportunities that I presently scan, with my sixth being emerging markets.
Good,Good with much common sense!
Most stocks today are still overpriced and still have some ways to go on the downside. In fact, I expect the landscape of the stock market to change to such an extent, many of the blue chips we thought of as safe investments to dissapear altogether.
This scenario happened during the great depression and will happen again, only worse. The reasons are plentiful as they are scary but suffice it to say, we are currently in the midst of a perfect economic storm the likes of which we have never experienced.
There will be great opportunities to be had down the road, such as in the alternative energy sector, however in the current environment I would stay away from everything except the gold and silver mining sector.
Adam if you can continue teaching people to trade the trend, then they won't have to worry about buy and hold. Your advice on keep emotions out of the market are so true. Create a trading plan, modify it only when necessary, and follow it. There are many articles on this blog and others that can teach people to build their own plan.
"No one is going to be able to predict what will happen to the market". I think the only thing you can do is have in mind a few things that MIGHT happen and then watch for it. Be ready to adapt and jump on board.
I've been in the gold gang for many years. We called everything pretty well up till 6 months ago. Many things went the opposite and what the "majority" in the fringe group predicted.
So you take your humble pie and move on. I've learned I need to be more flexible to changing markets. I'm in gold and gold stocks. But I can't be in it forever so when it changes I need to be ready to adjust and not hang on to a belief and watch things crash in denial.