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The market had a correction last week and we saw steep declines. People suddenly ask what is going on? Regardless of whether there is a "reason" for the decline, market commentators will disclose a number of factors with the utmost certainty that they are the cause for the fall.
Markets go up and down and all this analysis is over blown. Ultimately, there is a herd mentality in the market and at times very few people think for themselves. People in the market are like mindless cows at times, blindly following others right off the edge of the cliff.
I am sure there are psychologists and sociologists that have all sorts of explanations for this, but let's talk about animals instead. While I have never been in an honest stampede, I have been in front of a cow that had its mind intently set on going a certain direction. Knowing my weight and the milk cows weight, I have to recommend against ever being in that position. If you are smart you don't get in front of a stampeding cow.
And if you have ever seen one of those nature shows on TV when there is a herd of zebra's running away from the lions. It is always the zebra separated from the group that gets eaten. So the moral of the story is that at times it does not pay to stand out from the group. You are better off just running with the herd and not getting run over.
Now bringing this back to the stock market. There is a herd mentality in the stock market; everyone panics that oil prices are too high; or that suddenly subprime loans too risky or some dictator too dangerous and there is a stampede in the market. The wise market participant runs with the crowd and tries not to get run over so he is alive to play another day. There is no benefit to trying to stop a falling market; rather let it fall and then pick up the pieces after it hits bottom.
The market is going to go up and down, and if you over analyze things too much it defeats a good market perspective. The Dow opened the year at 12,459 and hit a high at 14,121 a couple of weeks ago. That was gains of 13.3% for the market. Last week it fell and is at 13,467 so it is still up 8.1% for the year. That is a still good year. Take a look at the chart.
So the thing to do is go in and pick up some nice values on depressed stocks. I ran a quick screen on companies that are down in the last week and picked out a couple of solid names that are off more than 10% in the last week. Starwood Hotels (NYSE: HOT), Nucor Corp (NYSE: NUE), Cit Group (NYSE: CIT), Alcoa (NYSE: AA), and Hasbro (NYSE: HAS) are a few names to start off your research.
Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.
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Reader Comments (Page 1 of 1)
8-07-2007 @ 8:26AM
Virgil Zoller said...
You hit the nail on the head here. All of these stocks appear to be of significant value. Especially if you look at the short term history on each of them and view quickly the long term history. HAS approved a recent dividend and is headed for another stock split within the next year or so. Also they have repurchased stock and their cash position is strong. A Blue Chip stock. The current recall is an exercise in due diligence which we should all be thankful for. The christmas holiday and toy sales will soon be upon us and this stock should increase in value. As you said it dropped so I took advantage of the situation and I purchased additional stock increasing the position of this company in my personal portfolio.
I am not familiar with HOT or NUE or AA but thanks for the tip. I will do a sutdy on these guys and perhaps include them in my personal portfolio. Especially if they are as good as HAS.
A tip for you is Stanley Furniture STLY. They too are a strong company financially. However their stock is depressed blamed upon the housing market slow down. Have you ever visited Target Stores, Wal Mart, or K Mart stores and looked at the low cost furniture offerings from Stanley? Again a strong company financially repurchasing stock. Christmas will soon be here and the sales from the companies indicated above will move you to purchase this stock.
Ya'll have a good day Ya here now.
Virgil Zoller