PDA

View Full Version : I think I am turning into a bear


jdoe
08-22-2005, 03:49 PM
Well first let me say that I followed the market for about 10 years and I still learn something every day. When people say the stock market is a good place to invest your money in the long term, I do tend to agree. The stocks that will still be here in 10 years will give you excellent returns over that time. But I have started think about all the ones that have/ will fall along the way. I can confess that I was shareholder of ATHM (@ home) when it was about $50 a share. I consider myself lucky to have pulled a very small profit out of this holding before it crashed and burned. But I remember thinking that the cable modem business was an easy winner. I owned a cable modem. I liked it. My friends were getting them and they like it.

Now had I gone short here (or bought puts) I would have pulled off a monster return. But at the time the idea of cutting off a finger sounded more appealing. I have started to wonder, are there more bad overvalued companies out there than good undervalued ones?

I am starting to think so.

Why?

Look at all the money in the stock market. I would say that most of it is in long positions held by mutual funds in 401Kís / IRAís (Now I donít know this I am just guessing here ) So that means there is a lot of irrational buy pressure in stocks. The money has to go somewhere right? So what does everyone look for?
Undervalued. Earning potential. Growth. Etc.

I canít see the logic in a stock that trades at 100X earnings (or may not even have any earnings) that is working on the cure for cancer and AIDS or claims to be 2 years from selling nanotechnology to my grandmother.

Just my .02
Jdoe

adios
08-22-2005, 06:55 PM
[ QUOTE ]
I have started to wonder, are there more bad overvalued companies out there than good undervalued ones?


[/ QUOTE ]

This could very well be true. Let's say it is for arguments sake. This doesn't mean that the stock market isn't a good place to invest your money. You wrote this also:

[ QUOTE ]
The stocks that will still be here in 10 years will give you excellent returns over that time.

[/ QUOTE ]

And here is why the "stock market" in the long run (as you wrote) is probably a good place to invest at least some of your money. The valuation of the stock market as a whole is dominated by these companies that will be around in 10 years. The S&P 500 which is a good proxy for the valuation of the stock market is a market cap weighted index and thus the bigger companies dominate its pricing.

A lot has been written over the past couple of years on this forum about the inherent risk in buying stock in individual companies. Once you go the route of selecting individual stocks for a portfolio, your level of risk probably rises alot for most people (including me because I'm greedy).