When Stanley Druckenmiller, one of the all-time great investors, bails out of the market because it’s too hard to trade stocks at the moment, you’d be forgiven for following him out the door.
And that’s exactly what seems to be happening.
A recent USA Today article quoted a fund manager, who said, “investors are on strike.” Sure enough, investor sentiment is as bad as it was during the market’s low in March 2009. The article also contained several anecdotes of investors who are sitting on large amounts of cash and have no plans to put it back into the market.
In addition, only 29% of stocks rated by the usually uber-bullish analysts have a buy rating.
There is a wealth of information and statistics, which show that investors, (individual and institutional alike) are fleeing the stock market and not returning.
The question is: Are they right?
Why the “It’s Different This Time” Theory Should Be Your Buy Signal
For sure, there is plenty to be worried about. The stagnating economy, the persistently high jobless rate, taxes, war, locusts, vermin. Okay, perhaps not those last two, but the list of negatives is seemingly endless.
And through it all, I keep hearing economists talk about why this recession, this economy and today’s problems are vastly different than the problems of the past century or so.
I salivate every time I hear the “it’s different this time” argument. And for two good reasons…
Look for Buy Signals by Following the Facts, Not the Media Flapping
There are several compelling reasons why you should follow the crowd away from Wall Street. The stock market still represents a very viable destination for your dollars…
But what I do know is that with so much fear in the air and valuations so low, it’s a great time to buy.
I’m especially interested in beaten-up small cap healthcare names and larger cap dividend paying stocks, such as Bristol-Myers Squibb (BMY, Financial) or Kimberly Clark (KMB, Financial).
Times are tough, but that’s when you’re supposed to buy stocks, before things turn around. Perhaps it truly is “different this time.” But I’m not buying it. I’m buying stocks instead.
Marc Lichtenfeld
http://www.investmentu.com
And that’s exactly what seems to be happening.
A recent USA Today article quoted a fund manager, who said, “investors are on strike.” Sure enough, investor sentiment is as bad as it was during the market’s low in March 2009. The article also contained several anecdotes of investors who are sitting on large amounts of cash and have no plans to put it back into the market.
In addition, only 29% of stocks rated by the usually uber-bullish analysts have a buy rating.
There is a wealth of information and statistics, which show that investors, (individual and institutional alike) are fleeing the stock market and not returning.
The question is: Are they right?
Why the “It’s Different This Time” Theory Should Be Your Buy Signal
For sure, there is plenty to be worried about. The stagnating economy, the persistently high jobless rate, taxes, war, locusts, vermin. Okay, perhaps not those last two, but the list of negatives is seemingly endless.
And through it all, I keep hearing economists talk about why this recession, this economy and today’s problems are vastly different than the problems of the past century or so.
I salivate every time I hear the “it’s different this time” argument. And for two good reasons…
- The Dotcom Boom-to-Bust: During the dotcom boom, when CEOs told me, “it’s different this time” and “we’re in a new paradigm” and “it’s all about eyeballs,” I shorted the heck out of tech stocks.
- The 2008/2009 Financial Crisis: When it seemed like we were facing financial Armageddon and the pundits told us that it was “different this time” because we’d never encountered the obstacles we were facing, I bought stocks (though admittedly not as much as I should have).
Look for Buy Signals by Following the Facts, Not the Media Flapping
There are several compelling reasons why you should follow the crowd away from Wall Street. The stock market still represents a very viable destination for your dollars…
- The S&P 500 is currently trading at the same levels as it was in March of 1998. In 1998, the S&P 500 earned $44.29 per share in earnings, giving the index a P/E of 25. This year, it’s expected to earn $83.04, nearly double that amount.
- In 2010, S&P 500 earnings are expected to grow 46%, the largest increase since at least 1988.
- Next year, the S&P is expected to earn $94.31 per share, putting the P/E at a low 12 times expected earnings and below the 14% growth rate.
- Since 1988, the S&P 500 has traded at an average historical P/E of 19.3. Today, it’s at 15, implying a return to 1,417 if it simply trades back to its average P/E.
But what I do know is that with so much fear in the air and valuations so low, it’s a great time to buy.
I’m especially interested in beaten-up small cap healthcare names and larger cap dividend paying stocks, such as Bristol-Myers Squibb (BMY, Financial) or Kimberly Clark (KMB, Financial).
Times are tough, but that’s when you’re supposed to buy stocks, before things turn around. Perhaps it truly is “different this time.” But I’m not buying it. I’m buying stocks instead.
Marc Lichtenfeld
http://www.investmentu.com
