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fransgeraedts (99.92)

What to buy now? an answer to a post by Mrluc

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September 16, 2008 – Comments (6)

Mrluc asked: I have cash.What should i buy now?

 

My answer: 

 

A very good question.

I want to answer it in two steps.

First there is the question of timing.

I do not think we have seen the lows in the S&P.

The market has not yet accepted that there will be a second more serious leg to the recession in the US. Nor has it accepted that there will be a global "recession" to accompany that.

Therefore I expect that the broad market has further to fall.

There is only one "low" that i really trust to hold and that is the one made at the bottom of the last bear market. S&P 800, that is.

So in general i would not invest money now for the long term.

To change my mind a serious proces of bottoming out should become visible. To give one example: it would be mildly positive if the july lows of the financials would hold. 

An important warning:

I think its possible there will be a sharp rally in the commodities and related stocks. They look very oversold here. But i think that that will be a bear market rally. There will be a second leg down as the slowing of the global economy really begins to bite. I am not sure such a rally will materialize, but if it does it would be a real trap for someone wishing to invest for a long time. It should be seen as a trade.

Second answer: where would i invest if and when the world markets have finally made a bottom?

A diversified portfolio.

Some commodity related plays for sure. Food and oil/gas. MON, POT, XTO, HK for example.

Some of the survivors in the financial field. I would be interested in global banks, swiss banks, US banks at a discount. Difficult to say now who will be in the best position.

I would invest in the BRIC markets. Probably a mix of proven investment funds and individual stocks. General theme: the growth of their middle class.

I would invest in biotech. Because of the inherent risks of failure in individual stocks i would invest in a few biotechfunds that have a focus i agree with.

I would invest in information technology. I would choose strong firms with a worldwide franchise. CISCO for example. Or IBM. When it comes to new tech i would again go the road of a few funds, because of the necessity of spreading the risk.

I would invest in solar, thinking that that is the place where a new bubble could form. I would invest around momentum, fundamentals do not really count there. I would not however look upon that investment as one for the long term.

Yours truly

 

Frans Geraedts 

 

6 Comments – Post Your Own

#1) On September 16, 2008 at 8:16 AM, Varchild2008 (85.30) wrote:

The market doesn't have to bottom in order for share prices of a good investment to be good enough to invest in today.  I mean look at P/E Ratios + RSI + Oscillating S&P and etc. and you can find top quality brand names selling for dirt cheap today.

Plus.  I still believe that there exists 1 sector on the stock market that is and will always be safe and that one is:

Food and Beverages.

If all you had were Food and Beverage companies in your portfolio it wouldn't be diversified but you wouldn't be hurting yourself.  Dr. Pepper Snapple is back to it's IPO price.  Coca Cola and Pepsi have been on the mend as of late.  Hanson Natural Corp has recently found it's bottom and it's trading sideways for now (although it's hit with a lawsuit).

Hersheys? Cadbury? Fresh Del Monte Produce? Where can you go wrong in this sector??

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#2) On September 16, 2008 at 8:26 AM, BradAllenton (31.46) wrote:

Guns and Ammo :-)      lol

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#3) On September 16, 2008 at 8:30 AM, Capsperson wrote:

Good advice !

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#4) On September 16, 2008 at 9:11 AM, fransgeraedts (99.92) wrote:

Dear Varchild,

 

i do not agree with your thesis. In secular bear markets like the one we are in it is very difficult to find stocks that will rise against the tide. Of course, there will be some that do... . The problem is in finding them. You suggest that a value approach would do the trick. I dont think so. A value analysis show's you wether or not a stock is "cheap". It doesnt tell you wether or not it will become even cheaper!

I do agree that food and beverages are a good defensive sector. But that only means that they will fall less. It only makes sense to invest in them now if your a fund manager that has to be invested in the market.

fool on

 

Frans Geraedts

 

 

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#5) On September 16, 2008 at 9:12 AM, fransgeraedts (99.92) wrote:

Dear Varchild,

 

i do not agree with your thesis. In secular bear markets like the one we are in it is very difficult to find stocks that will rise against the tide. Of course, there will be some that do... . The problem is in finding them. You suggest that a value approach would do the trick. I dont think so. A value analysis show's you wether or not a stock is "cheap". It doesnt tell you wether or not it will become even cheaper!

I do agree that food and beverages are a good defensive sector. But that only means that they will fall less. It only makes sense to invest in them now if your a fund manager that has to be invested in the market.

fool on

 

Frans Geraedts

 

 

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#6) On September 16, 2008 at 9:29 AM, dinodelaurentis (72.98) wrote:

my 2 cents.

commodities, defense, and sin stocks.

we will always need food, oil, and gas at least for the next 10 years.

defense funds (and i mean the big guys as well as up and comers like irobot) because of increased fears of loss and xenaphobia in hard times and goverments desperate desire to stay in power, sprikled with conflict for reamining scant resources (real or imagined).

and sin stocks like gambling, alcohol, tobacco, and entertainment as folks seek to escape a grim reality, just like in the thirties. GE owns most large poronography companies. VICEX is a mutual sin stock fund. you could also include electronic games now.

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