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Dumbness, take 2

Recs

8

August 18, 2011 – Comments (7)

Like Britney, they did it again.  I was annoyed because the 4-day wait imposed by Fidelity on my IRA contribution caused me to miss out on last week's dip - but stocks obliged me by getting dumb cheap again.  Got more AAPL at 363, more BWLD at 54.93, more INTC at 19.63.

A lot of money came out of the market today, sure.

Where's it going to go?  Gold?  There isn't that much in the world.  Synthetic gold derivatives?  Maybe - maybe not.  Money market?  To get 0.1%?  I doubt it.

Lot of attention being paid to known lagging indicators.  Hey, we're in a recession.  No kidding.  Doesn't mean that stocks will never go up again, or that they have no value.  Look at your time horizon, and if it's long, look at fundamental valuation and margin of safety - and you'll never go wrong. 

7 Comments – Post Your Own

#1) On August 18, 2011 at 4:50 PM, davejh23 (< 20) wrote:

I wouldn't call AAPL at 363 "dumb cheap"...it's down a whopping 10% from it's all time high.  At least INTC has a nice dividend.  Assuming they don't slash the dividend, I wouldn't mind sitting out futher weakness in INTC.  I don't know about AAPL.  They've set a precedent of posting moderate guidance and blowing out numbers as well...if they just meet expectations going forward, the stock could tank...even on increased earnings.

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#2) On August 18, 2011 at 5:22 PM, ElCid16 (97.08) wrote:

Do I need to repeat the exact same comment I posted on your last "Dumbness" post?

3 of Ben Graham's rules regarding value investing:

1.  Target comanies that are trading at less than 7 times trailing 12 month earnings.

2.  Target companies that are yielding more than 7% in dividends.

3.   Target companies that are trading at less than 80% of book value.

By Ben Graham's standards, INTC isn't even a good pick value right now, let alone "dumb."  

I'm not saying your wrong by adding to your positions; and I'm not saying that these stocks will fall further from here.  But to blog that these valuations are "dumb" is fairly misleading. 

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#3) On August 18, 2011 at 5:53 PM, ikkyu2 (99.27) wrote:

Ben Graham never had to deal with Ben Bernanke.  His rules were for an environment in which stocks were denominated in dollars, dollars were backed with gold and cash offered a decent return, paid in gold on demand.

This is a different world.  The only thing the same is that businesses are still businesses and stocks are still nominally denominated in dollars.  Dollars aren't the same things they were then.  The concept of a risk-free rate is very different from what it was then.

A lot of people claim to know what Ben Graham would do.  I'm not that arrogant.  I'll tell you what Ben Graham didn't do; he didn't rely on principles laid out in a 70 year old book - and I've read Security Analysis cover to cover - to guide his investing.  He wrote his own book instead, based on the realities of the times.  

The way I see the realities of the times is that ownership shares in businesses are worth more than cash, right now.  Future earnings of corporations - real corporations, whose products will be in demand - are going to be denominated in the dollars we have today - not in gold.

These ownership shares will attract capital simply to prevent capital destruction, which is what's going to happen to all you folks who are 'keeping your powder dry'.  That's happening right now.  Capital destruction is also going to happen when all the people who think they're investing in physical bullion but are in fact investing in synthetic derivative instruments get hit with counterparty risks that they didn't even know they were exposed to.

Verb. sap.!

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#4) On August 18, 2011 at 6:04 PM, ikkyu2 (99.27) wrote:

Also, if you want a Graham company today, take a look at TOT (Total SA), the European integrated oil company.  Trading near book with a P/E of 6.5, a dividend that's 7%, and 42% payout ratio at today's price of 43 and change.

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#5) On August 18, 2011 at 6:24 PM, mtf00l (47.45) wrote:

ikkyu2,

Well written.  So who's selling Gold Credit Default Swaps with Standard and Poor's Tripple A?! ;-D

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#6) On August 19, 2011 at 3:48 PM, JPAKolypse86 (< 20) wrote:

In real money terms, I'm riding out this storm in REITs and high dividend yield companies. Whether the market goes up or down isn't too big of concern to me right now. But I do feel the itch to buy more GE and INTC. They are just so cheap. 

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#7) On August 19, 2011 at 3:54 PM, EnigmaDude (86.91) wrote:

Looks like Intel is about to get even cheaper, thanks to HP!

http://blogs.barrons.com/techtraderdaily/2011/08/19/intel-nomura-sees-threat-to-processor-revenue-in-hp-move/?mod=yahoobarrons

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