Market crashing again...lawsuits flying left & right...politicians running for cover... I'm still sitting in cash, except for ANST, which continues upward... Does anyone have any ideas?
Let's not confuse a crash with a healthy correction after an extraordinary, extended runup with very, very little volatility. The Dow is only off 3% from year end levels and only 5.9% from its historical peak in 2/07....hardly the stuff of a crash. Hell, to put things in perspective, we're up 7.1% from year ago levels and adding a 2+% dividend, year over year return is 9.3% which is almost exactly on trend for average annual returns for the last century! Things do tend to revert to the mean...... The 06 correction that began in May and bottomed in early July was more severe than the one we're experiencing at present....at the end of the day, we lost 8% off the Dow during that time period and by historical standards, that was a modest pullback. Corrections of at least 10% are normal and healthy occurences....since the end of the 06 pullback let's not forget we are up over 15% in total return since that time, including yesterdays pullback.....consider it a 6% discount sale on quality names. The fundamentals are still sound and the economy is on solid footing but the slowdown in the housing sector will dampen growth near term. The best idea is to not panic and sell at discounted levels but stay diversified and focus on quality. The recent pullback has been virtually indiscriminate....they are many names that will not survive the sub-prime shake out but then that's what shake-outs do.....eliminate those poorly capitalized, poorly managed firms without the wherewithal to survive the inevitable business cycles.....on the flip side, there are many names who have been taken down who have survived many, many, many business cycles and will continue to grow and prosper..... there will be a premium on quality here, as there should be. Good luck boys......remember, I'm often wrong but never in doubt!
When I read stories like the one I have linked here, I have to wonder what are people thinking when they get involved in these subprime mortages in the first place. The linked situation was a couple that 1) bought a 300K house they couldn't afford. 2) They agreed to a bad financing deal 3) the market changed and instead of paying 1200/month on the first mortage they are paying 1800/month and they have a 2nd mortage to pay as well. I wonder why they didn't buy a smaller home that they could afford? Dream Home Gone Bad
Brings to mind one of my favorite sayings of all time I heard from an old Wall Street veteran who when asked why he focused so much on the benefits of a proven management team over the newest flavor-of-the-month replied "Dumb is forever!"