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iamnik77 (95.86)

I lack the vision needed to short this market....

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March 10, 2009 – Comments (5)

Are you wondering how all of those truly creative investing geniuses can pierce through the investing fog and see Dow 5000 and lower? Actually 5000 doesn't seem like an impossibility to me but I just can't sell stocks that are offering me earnings yields of 10% and higher over the next several years. I don't know what else can beat that long term.

Below is a reply I posted to another blog post. It captures much of what I am thinking at the moment:

Dow 5000 or Dow 8000? Why worry about that?!! The price is right, the price is right! Take advantage of this opportunity and accumulate some bargain priced shares in quality companies whose futures are bright. Just because all these folks with 95 and up ratings are preaching doom and gloom doesn't mean you have to buy in to it. Some of these folks are short sellers who NEED you to panic and dump your stocks. Do yourself a favor and disappoint them. Some of them may be the real deal but others are just the flavor of the day and a year or two from now will not have kept their all star status. If you ever wanted to hear what Ben Graham's Mr. Market sounded like, look no further than the Motley Fool CAPS blogs. Many people made a small fortune buying tech in the late 90's but they didn't have a framework upon which they could build a truly successful investing career. The time to be excited about shorting stocks was a year ago but few were preaching that kind of wisdom back then. Now everyone acts like they knew it all along. All of this doom and gloom is just another form of group think.

No doubt, we all must put up with a lot of investing noise which makes our decisions more difficult. Add this post to all of that noise. Even the best of the best investors disagree in some major ways. In this pursuit you truly must learn to put all the pieces of the puzzle together and think for yourself because noone has your best interests at heart like you do.

5 Comments – Post Your Own

#1) On March 11, 2009 at 12:10 AM, FleaBagger (28.91) wrote:

The difference is that today, there are fundamentals driving the market down, whereas there were no fundamentals driving the market up in 1999. You point out that stocks have high dividend yields right now, but all undoctored economic indicators point to almost universal earnings contraction, followed by dividend cuts. A big part of the problem is the government's inexorable push towards protectionism, favoritism, higher taxes, stagnation, and inflation.

In the Great Depression, the Dow fell 90%. Since we're facing the same problems that were faced early on in the GD, and we're pursuing the same policies that were pursued then, I'd say the odds are short that we've got a long ways left to go in this bear market.

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#2) On March 11, 2009 at 12:14 AM, coralbro (95.06) wrote:

10% yield sounds great...until they cut their dividend...and inflation reaches 10%...then you are actually losing purchasing power.

Sorry, had to play devil's advocate, but mostly I agree with your post.  Stocks are so low right now we must be getting close to the bottom.  And if we aren't, there are bigger things to worry about.  For anybody who plans on buying and holding, now is an amazing buying opportunity.  If you're daytrading or swing trading, yield doesn't mean much, nor do any other fundamentals, but good luck with your trading strategy. 

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#3) On March 11, 2009 at 12:34 AM, shffl (< 20) wrote:

I agree with you that "The price is right, the price is right!" and it should not stop you from investing in a sound company. But the problem is that the economy seems to be heading into a turmoil. The price that is right today may no longer be right tomorrow. Companies that are healthy today may not be next year. My friend who is ever so eager in investing in high dividend paying stock is taking a beating as of this moment. LIke what others have said, when yields are being cut and inflation rises, the price will no longer be right.

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#4) On March 11, 2009 at 9:43 AM, EHoyle80 (< 20) wrote:

The cover story of the latest Barron’s declares optimistically “Sure, stocks could slide much further -- but they probably won't. By most measures, they are downright cheap.” (http://online.barrons.com/article/SB123638337231157995.html) The Stock Research Portal comments that the article contains a “fatal flaw”: “the heavy reliance many economists, analysts, others place on historic trends and their application to current day prospects. Right or not, I believe that after the turn of the century the world has become a quite different place.”

Via Stock Research Portal

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#5) On March 11, 2009 at 10:41 AM, iamnik77 (95.86) wrote:

I enjoyed all of your replies but must clear one thing up. I mentioned earning yields not dividend yields. The two are not the same. An example would be Coca Cola with a dividend yield of near 4% but it doesn't pay out all of its earnings. Just divide its PE by 100 and you get the earnings yield which is somewhere around 7%. Dividends are kind of a smokescreen in this market anyway because it takes a decent earnings yield and a good balance sheet to keep those payouts anyway.

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