There is a lot of bad news affecting the stock market and prices are falling for some very important reasons. These include reduced expectations for earnings, higher unemployment, a lack of liquidity, a housing market that has not bottomed yet, federal spending gone wild, and the collapse of some venerable financial institutions to name a select few.

The Standard & Poor's 500 Index: started the year (Dec 28, 2007) at 1,478.49 and as of Friday October 3 it was 1,099.23, down 25.7%.

There are concerns about recession and even a depression and the global market for most commodities has softened.

Given all this how can I believe that the market is becoming irrational to the downside and values abound?

For one reason I know that many people are selling stocks out of fear of the market going lower and they do not want to be the last one out of the pool. That is a legitimate reason to sell but has nothing to do with the intrinsic value of a company or stock. If the index is being sold off then that means the good are being sold along with the bad.

Another factor pressuring the market relates directly to tight liquidity. I recently refinanced my home and the bank wanted me to reduce my home equity line to comply with its much tighter lending requirements. I sold some stock to accommodate them but this had nothing to do with stock valuations. I also sold some stocks and funds to buy down a commercial real estate loan in the past month. I had no pressure to do so because the loan to value is very low, but we are looking to acquire additional property as distress sales turn up and want to keep our powder dry.

Many people have been allowing their credit card debts to increase but facing little hope of growth in the stock market; those that can are selling stocks to buy down their debts where they can. This too has nothing to do with the intrinsic value of the stocks they are selling.

Ted Allrich is the founder of The Online Investor and author of Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he offers advice to investors who are just getting started.

Every investor I know is hurting. Doesn't matter how great they were in years past. They're all stunned at the hammering in their portfolios. The smart ones are doing two things now: they're moaning, along with the rest of us, and they're doing research to find bargains they haven't seen in decades.

We all know about stock bargains: they look great when you buy them. Some of them do well and bounce back. Others get to be even better bargains, then hit the clearance bin before they become totally worthless. The bargains I'm suggesting here are the ones that have the best chance of bouncing back. How can you tell?

When I look at Yahoo! Inc. (NASDAQ: YHOO) as I do periodically, I can not understand its valuation. I still have trouble with the valuation of Internet companies in general I suppose. Yahoo! closed yesterday at $24.95 per share and since it is one of our original eight blogging stocks it is on my watch-list.

During the course of the year I have read many buy (albeit speculative) opinions and it seems to stay in the news every day. But when I look at it as an investment I just cannot make any sense of it. There are many positive things I can think of about the company but a price-to-earnings ratio touching 49 is not one of them. It's too high! (Jim Cramer makes a different evaluation in his earlier post.)

It's nice that Yahoo! has no debt and I suppose if I wanted to speculate I would be encouraged that it is near a 52-week low. However this would not let me rest easy at night because I think that if earnings do not improve significantly it may be worth 35% less in the near future when others see what I see.

I see earnings that are weak and getting weaker. Yahoo! earned less in 2006 than 2005. In 2007 it earned less than 2006. As one of the prime pieces of web real estate this is not a good sign. Not only is Yahoo's earnings poor, but what it does with the earnings are not good either. It has an ROE, ROA and ROI that average about 7.7. so it's clear the company is not making a lot of money, nor does it know what to do with what it is making.

Microsoft Corporation (NASDAQ:MSFT): if you own it fine. If you are looking to make a lot of money, why buy it? Yes, we've heard about Zune. Big deal, I say. X-Box, so what? Vista might be real catalyst, perhaps. MSN a cash cow? That's another work in progress -- but it is a player.

I love MSFT's balance sheet, profit margins, and dreamy cash flow. But with all the stories about Microsoft and various initiatives, management and ideas, I just don't see what all the fuss is about. As a company it's nice. If you were along for the pre-2000 ride that is wonderful. But now it's a slow moving behemoth that will continue to grow a little bit at a time and never ever be what it was -- a high growth stock.

The stock buy back did not go as planned because management actually realized the shares are worth less and needed support. They could not buy enough because silly shareholders think the company is worth more than management does.

Well, I disagree with shareholders and agree with management instead. They will continue to be supporting the share price, keeping it from falling to $19 or $20 even as each new initiative is slow to add to revenue.

If you disagree with my view, as many will, then please stop telling us why the stock will rise and tell us what you think projected (speculation) earnings will be for each segment and what has specifically made you so optimistic. Throwing out numbers is ridiculous with no economic facts to back it up.

Why does anybody think the stock, now at $25.70, will be $30, or $35 or $60? Why shouldn't it be $19? Why shouldn't it have an average P/E? I would like to know. I would like to make some money too. I just can't figure it out -- enlighten me.