Thursday, October 9, 2008

An Ugly Market - Should you Get In?

Dow Jones Plummets

Wow, this market is getting ugly isn't it?  Just when you thought it couldn't get any worse, it did.  Seven straight days down.  Not just down, but huge moves down.  After the bailout, the market is down over 20% from a week ago.  Doesn't look like the bailout plan created much confidence in the market does it?  Are we done yet?  Probably not.  I can easily see the market going under 8000 and probably even 7500.  From the market peak, the market is down almost 40%.  That is a pretty scary number if you think about it.  To give some perspective, here are the declines of some of the major bear markets

  • Tech bubble burst- 34% (Over a 2 year period)

  • 1987 Black Monday - 23%

  • 1970 Stock Market Crash - 45%

  • 1929 Crash, The Great Depression - 89%

So, while we aren't in the worse crash of all time (not even close) we are in one of the worse crashes in recent history.  If the market goes down another 5%, which it could easily do in a day, we could easily be in the worse corrections we have ever seen. Is this justified?  It is really hard to say.  I find it hard to believe we can drop past 50% but I also have to admit that we are in unprecedented times.  I am getting my shopping list ready, and looking for a way in.  I won't be blogging tomorrow, it is the girfriends birthday and we are going away for the weekend, but I will be thinking hard about what I want to own.

I think you need to stat looking to buy.  I had no interest in buying for several more months, but I seriously did not expect the market to go this far down this fast.  I still am mostly in cash, at least 70%.  That's partly because my equity portfolio is so far down this year :)  But seriously, you want to buy the companies that are going to make it through this mess.  These are companies with

  • Strong balance sheets with very little debt

  • Strong cash flow

  • Can grow by avoiding using debt and funding it with cash on hand

  • Globally diversified

  • In economic insensitive markets

As crazy as it sounds, I'm also interested in banks.  The sector is getting destroyed, and clear winners are going to emerge.  You add this to the fact that the government is making it EXTREMELY profitable to be a bank these days, and you have a recipe for some very big winners in the future.

So what are you doing in this market? Staying on the sidelines, losing your shirt, or feeling like a kid in a candy store?


  1. I'm going to sit and wait.

  2. Good plan, the market is only for the brave or stupid.