Opportunity in Patience
October 6th, 2008
There are many opportunities in the market today, but the challenge is being patient
enough to own them. Many years ago I taught a seminar, “10 Laws of Successful Investing”. One of the laws, ‘when
things look their worst – dollar cost average’. The current market environment is extremely volatile, swinging
up or down on every piece of news. It is times like this that we have to step back, take a deep breath. Sifting
through the debris of this correction can be depressing on the one hand, yet encouraging on the other. I read a
quote by one analyst this past week , “Everything looks cheap, but there’s nothing to buy.” One thing is certain
when emotions are involved, reactions are overdone. Meaning we overreact to situations when we react
emotionally. This presents opportunity.
To put the damage in written form let’s take a look at where are they now? The following is are the 10 sectors
of the S&P 500 Year-to-Date.
Basic Materials = -34.2%
Consumer Durables = -13.1%
Consumer Services = -19.3%
Energy = -24.8%
Financial = -32.1%
Healthcare = -14.1%
Industrials = -29.4%
Technology = -29.4%
Telecommunications = -32.9%
Utilities = -22.7%
S&P 500 = -25.1%
Scanning through the charts is depressing. The quote above summarizes the emotions you go through looking at the
charts. The appearance is cheap, but taking into account the current state of the economy, you wonder if there
is anything worth buying? Having done this for more than 25 years, these same emotions arise every time there is
a correction of more than 20%. No matter what the reason is behind the selling it is difficult to invest at or
near the bottom of corrections. This is where we find ourselves as investors now. Do we buy or do we wait. There
are very logical arguments on both sides. I believe it comes down to having a strategy as to why you would buy
anything. That strategy as you know must define how to get in, how to get out, and what you are looking to
accomplish. (Entry, Exit and Target)
Plenty of news surrounding the financials has money looking for opportunities in the sector. They do exist if
you have a long term perspective (36+months). An example of this would be the Wachovia/Wells Fargo deal. If it
holds up through Citigroup’s challenge the long term looks great for growth. The short term issues facing the
credit on the books of Wachovia is the challenge. But, the rescue package from Congress could help. The
challenge is knowing the details on both sides of that transaction. So, there is opportunity you just have to be
patient and have a longer term outlook.
Homebuilders and housing gained nicely in the third quarter. The outlook is positive with the FHA $300 billion
bailout plan combined with the $700 billion bailout of financial institutions and $8 billion from
Countrywide/Bank of America help. There is plenty of money being thrown at this problem. That should bode well
for the sector over the next 18-36 months. Again the perspective has to be longer term for these opportunities
to play out.
We will be looking at these and other sectors through this Sector Spotlight as well as the Chart-of-the-Day
post. If you have not registered to receive these report free via RSS feed or email click on either and sign up
today.
