During the course of 2007, I read on many occasions that we were in a "Goldilocks" stock market, meaning that while some stocks might be too hot and some too cold, most in the overall market were just right. The overall market had a great run from early winter to mid-summer before it took a big dive.
We saw some recovery from those low points until the credit markets tightened up and billions of dollars in losses and write-downs occurred, bringing down any stocks related to banking, lending, housing, construction and the like. Now consumer debt and consumer spending are frightening the market in the midst of the holiday shopping season.
I started to think about all the fear and doubt forming like dark clouds, speculating on a possible recession in 2008, though I am not convinced of that outcome. I happen to believe that even in the worst markets there are good stocks to buy, maybe even more of them. So I offer up a new metaphor for our current market --- the "fluff & fold" market, when almost nothing is just right.
By this I mean that there are stocks out there with so much fluff that people have bid up for no good reason, chasing a dream (you will never convince them of that until it swoons) which I call the fluff. Then there are others that the market has decided are untouchable and is shunning, but may have overshot the mark to the downside. Investors have tossed their cards in and decided to fold.
Forgive me for mixing metaphors, because fluff & fold usually refers to laundry and I am mixing in a poker term. Unless you like the notion that some investors have folded up their tent and gone away... but I would view this as a more appropriate term for managers that have taken their money and run away from the mess they created. The fluff & fold market is erratic and volatile, and this will characterize 2008 even more than the end of 2007.
In today's market, I consider Amazon.com (NASDAQ: AMZN) part of the fluff with its sky-high valuation and Newcastle (NYSE: NCT) part of the fold with investors having oversold based on the scary market sector they are in. Investors simply feel better about internet companies and technology then they do the real estate lending market, not bothering to consider the fundamentals. If they have checked the fundamentals, they see only what they want to see to justify their position; this I call Selective Correlation, a concept I will be ranting about in the future. And when you think you know everything, take pause and read Sunday Funnies: Was the Citigroup Board really in the dark?
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
12-17-2007 @ 7:16PM
tony said...
I think people view Amazon in the wrong way. Amazon is a portal, it's a concept, it's a way to order things on the internet. It's not a retailer anyway. It's a globe delivery system and I believe that eventually it will buy UPS or Fedex and potential other similar companies. As a result, I believe it is incredibly undervalued.
12-17-2007 @ 8:10PM
Sheldon L said...
Tony,
It seems you fit well into the dream chaser group. Before you invest on faith investigate some of what you have said here. You will find only 10% of UPS share are public. It is employee owned, and not for sale. UPS is a $50B company while AMZN at todays inflated price is worth $35B and since it has a lot of debt is in no position to take on UPS or anything else of that size.
Why do you say people view AMZN the wrong way -- who pushed the price up so far, a lot of people are chasing the dream just like you.
However, I do own shares in UPS and FedEx.