Thursday, August 16, 2007

This Is Great

If you are like me and have 20 or more years before you plan on touching your investments, times like this make you giddy.

The DOW is back down to 12,500 and now at levels seen since April and another day or two of this will give us levels back to November 2006. Why then is this great?

1- The economy is still strong and growing. Profits are still rising at a double digit rate and unemployment is at historically low levels. GDP for Q2 will be revised up and there is no recession on the horizon.

2- Cash rich companies are buying back shares in unprecedented numbers.

3- Over 50% of S&P 500 companies profits come from overseas where economies are surging.

What does it mean? The underlying fundamentals are strong which means eventually share prices are going to turn around. What we have is a credit problem and when traders cannot sell off this debt, they sell what they can which is shares companies like in Goldman Sachs (GS), Dow Chemical (DOW) and Altria (MO). I mean, if we look at it logically are the events of the last month going to stop people from smoking OR will it effect Altria's balance sheet which is laughingly unlevered? No.

So, are my picks down? Yup, so what?!? Paper losses mean nothing to me, purchase prices do at this point in my investing career. Market disturbances like this that cause mis-pricing of equities like we see now are great for me. What I am busy doing now is lowering my cost basis for recent purchases like Goldman, Wal-Mart (WMT) and Citigroup (C). The last time I could have bought shares of Goldman and Dow Chemical at these levels was Sept. 2006, Citigroup , February of 2006 and you have to go back to March of 2006 to buy Sears Holdings (SHLD) at these prices. The sale price if Sears now is so low that Chairman Eddie Lampert is tripping over himself to buyback shares. He has bought as many shares back in the last month as he had almost the entire last year!

In short, the world is not coming to an end and the economy is still very strong. Keep buying...

You know, if Buffett and Lampert are buying more shares every quarter, why aren't you?

blogger templates | Make Money Online