|
Author: Al Thomas Article source: http://www.kabish.com/. Used with author's permission.
Every day I hear from the "experts" on CNBC-TV and the radio gurus that the way to buy stocks is find value. One man's Rembrandt is another man's connect-the-dots and fill in the spaces. Valuation is like beauty. It is in the mind of the beholder.
If valuation is the key to buying stocks then there should be some kind of a formula to determine what is undervalued and over-valued. In every industry there are formulas for standards of performance. For cars we want to know the zero to 60 miles per hour in how many seconds. For soap we want it to be 99 and 44/100 percent pure. For alcoholic beverages it could be how long it has been aged. And on and on.
Yet in the stock market we have no hard and fast set of rules by which to judge a company performance. Ah, and there's the rub! No matter how good a company performance might be it may have no bearing on the price performance of the stock. You can find good companies that are within a sector that is doing poorly and yet one company can be making huge profits and sales, but the stock price is going nowhere. There need not be any correlation.
When you are in a bull market almost every stock goes up - even the dogs. When you are in a bear market almost every stock goes down - even the best ones. We ended an 18 year bull market in 2000 and almost without exception every stock headed for the exit.
Bull and bear markets follow relatively standard patterns of about 16 to 18 years up and 16 to 18 years down and the valuations go right along with them. If you own stocks or especially index funds during the bear periods you will be lucky to have broken even at the end of the 16-year cycle. Cash in your mattress will outperform market returns while the bear is in charge.
During these bear times there will be periods when the market will have a nice advance such as the one we saw start in 2003. These intermediate rises can ultimately bring many investors back into the market only to lose it when the rally is over and true valuation returns.
One valuation measurement for the overall market is the Price/Earnings ratio of the S&P500 Index. The median number for the historic purposes has been around 14. Today it is running about 21 which is considered high. When bear markets end the P/E can be about 6 or 8. There are other factors to be considered when buying any stock or fund, but the one thing that is most important is to have an exit strategy. Without one you will give back your profits.
No one knows exactly where the top or bottom of a market move will be. Knowing conventional valuations is one tool to help your buying and selling decisions. Al Thomas' book, "If It Doesn't Go Up, Don't Buy
It!" has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he's the man that Wall Street
does not want you to know.
Copyright 2005
Personalise Your Characters with Body Language
Have you ever stood and watched a long queue of people. It makes no difference why they are waiting; just standing, waiting is boring, and those waiting come ac...
Team Building requires one great dynamic for true Success - Mateship
Having played in many team sports such as Australian Rules Football, Cricket, Water Polo and even Mixed Netball, I have noticed one outstanding attribute of a S...
Increase Your Sales Without Spending Another Cent
Many home business owners lament they don't have enough cash to pay for online advertising to propel their business forward. Make sure you are being the best y...
How To Determine The Sex of Discus Fish
Determining the sex of discus is not easy. Here is a good guide to aid the discus fish fancier...
How To Be Motivated To Create The Life Of Your Dreams
Do you really know how to be motivated? All the time?
Hair Raising Stuff
Wrong choice - Wrong image - Wrong you. Where did I go wrong...
Intranet Project – RAD or Waterfall?
What is the difference between RAD and Waterfall methodologies and which should I use for my intranet portal project? Find your answers here - or at least - t...
Building The Foundation For Wealth
The path to wealth building begins with the strategy of "investing" in your own debt.
Glorious Summer Greens
Green vegetables are the food most missing in modern diets. Nutritionally, greens are very high in ...
The Importance of Website Stats to You
If your not frequently checking out your website statistics, your basically making web pages in the dark. Stats can show you what keywords and pages are the mos...
Creating Your Future
Where am I going and how do I get there? These are the two questions we most often ask in life when we find ourselves struggling with our lot-in-life. Take a lo...
Acne Prevention Tips
Preventing acne is an extremely difficult thing to do. There really isn't a cure for it, yet it drags yourself esteem way down.
Great Customer Service: Do You Use This Essential Tool?
This essential tool can improve your customer service and repeat business significantly. Use it well and you will also experience more referrals.
Ten Quick Tests To Check Your Website For Accessibility
Learn how to quickly check your website for accessibility with these ten tests.
Top 10 Skills for New World of Work
There are many changes coming in the world of work, such as increased competition, the need for more education and certifications, and the trend to change caree...
Beach Wedding Favors You Will Love To Give Away
Find details about beach wedding favors, places to find them, and where to start your search for them.
Diet Fads Come And Go
Cursed by dieters everywhere, and loved by children around the world, sugar is one those substances we 'love to hate' and 'hate to love'! It can make bland food...
Goal-Mapping
6 Simple Steps to Makikng Your Dreams Comes True.
MLM or Pyramid scheme - What is the difference?
The multi-level marketing(MLM)concept is now being recognised by many businesses and corporations as a viable and ethical way to do business, but still many peo...
A Teak Table - Accent Your Outdoor Decor With One
It's been time consuming, and there have been a lot of hard decisions along the way, but finally you have chosen the perfect outdoor furniture that fits your pe...
How to Avoid Paying Mortgage Insurance
Save money every month by avoiding mortgage insurance.
How To Make A Seashell Bridal Bouquet
Would you like to make a seashell bridal bouquet for yourself or for the bride? Follow these simple instructions.
Golf Fitness Evaluation Is The First Step Towards Improving Your Game
Golf fitness evaluation can be an invaluable tool in helping any golfer to assess where they currently stand and thus help them reach a decision of what they ca...
Tales From the Corporate Frontlines: Team Dynamics and Communication
Team Dynamics and Communications: In today's marketplace, in order for organizations to operate efficiently, it is essential that they understand how to create ...
|
Print this page