IMO, we won’t see a sustainable rebound in the world’s stock markets until the credit situation improves. Companies require relatively cheap access to capital in order to invest in new businesses and to expand current businesses. Stock performance is driven by the expected future free cash flow growth, discounted by the perceived riskiness of the company. Plus, if there isn’t a market that’s willing to pay for their products, they won’t invest. Right now, the credit environment is so bad that many companies have the anxiety of possibly not being able to re-finance debt that’s due in the near future - or at the very least - re-financing at unattractive rates. Even short -term liquidity is a big concern. Lending institutions are cutting off revolving credit agreements, except for companies with the very highest credit quality, which means the commercial paper markets are off-limits for most companies.
That said, this doesn’t mean that you won’t be able to find a stock that will bring you high short-term returns. You just need to understand that you’re essentially gambling.
If I had to invest in stocks, I would take my clues from the good ol’ Uncle Sam. Luckily, the US government has taken the extraordinary step of guaranteeing all A1/P1 commercial paper of companies. So the highest credit quality companies would be the first to be able to invest and create future cash flows once the demand is out there. Also, the government will be creating its own demand by investing in the country. When corporations are de-risking, it’s the government’s job to risk itself up - to jump in when private enterprise fails. I would invest alongside the government. That means banking, infrastructure and higher credit quality.
Typically, I don’t like investing in financials. But the way the economy is now, if the banks don’t rebound, no one will. Of course, many financials could go under in the mean time, so I would certainly diversify across the sector.
I could not agree more - many of the financial services company are surviving on a hope and a prayer…and billions of government infusion. Some will survive, but I’m pretty certain we have not seen the end of the failures/mergers, etc. They are risky bets that may, in the long term, pay off, but who knows.
I too think the tech sector is going to lead a resurgence, and “green energy” stocks can probably only go-up as well. Not sure about the tradtional tech companies (no Dell, etc)…but look at what business are doing to reign in costs - anything related to virtualization, cloud computing, or enterprise scalabilty I have to think would be huge.
VMware (VMW) is close to a historical low right now around $20, but their products are beginning to become as ubiquitous to large enterprises as Oracle, Microsoft, etc. If I had the money I’d take a bet on them.
I tell this to anyone that will listen, but GameStop (GME). They sell more video games than almost any other company in the world (only Wal-Mart sells more) and they deal in the very lucrative used game market.
I know a true gamer should hate them for how little they give for trade-ins, but as far as a stock pick goes, they’re a winner.
Also, the video game industry is one of the few industries that grew last Christmas, can’t go wrong with that.
You could just take the money out in cash and just flush it down the toilet. Or toss it off a highway overpass. Atlantic City has some good returns too.
Not that stocks are inherently a bad investment, but why would you invest money in something you know nothing about?
Look at the advice people are giving:
Buy what has been beaten down the most
Market timing / technical chart analysis
Gold
Financials
Satellite radio
Solar
Videogames
These have all traditionally been terrible investment strategies.
Markets are relatively efficient and the price of a stock already contains all the information publically available about what people think the price of that stock should be. Citibank is a $4.00 a share because all indications are that is what the company is worth at the moment.
How long are you willing to wait to see a return on your investment? What is a reasonable rate of return? 5%? 500%? Over how long a time period? One year? Ten years? Do you expect it to earn more than a 3% savings account or a 4% CD? What if it drops another 10% after you buy?
You want to buy into the market? Find a nice no load or low fee mutual fund and buy $100 the first trading day of each month, regardless of what the market is doing. Over time it will dollar-cost average out (basically smoothing out the volatility to be more in line with the long-term growth of the market).
Or just drop $500 on Netflix (NFLX) or something [makes craps dice tossing motion].
Just to comment on some of the stocks mentioned in this thread:
VMW: is underperforming the market, is volatile, and has not been meeting its own estimates. A trifecta of poor performance.
GME: is a bit better than VMW, but is also underperforming the market, and has less-than-stellar earnings momentum.
NFLX: is actually a good bet, as it has solid performance and financials. It’s been an up and down performer over the years (I’ve bought it, sold it, bought it again, sold it again).
WMT (Wal-Mart): mentioned in passing above, this is actually a powerhouse performer and was one of the few retail companies out there that was actually making money during the bloodbath.
Finally, I would just say this: investing in the market is a lot like playing poker. Don’t bet what you can’t afford to lose.
I don’t recommend investing in GM, but if you feel you must, I would look into their exchange traded debt. In the event of a huge GM restructuring, you’d be better positioned to get something back, as opposed to common equity which would likely be wiped out. You could check out the following tickers:
Oh - yeah mean ‘those in the know’ who didn’t get their shirts fleeced during this downturn?
I bought $100 in Sirius. Minimal investment - I figure the infrastructure (satellites) are already there, so there is some sort of capital investment value to a would-be buyer.
That’s interesting. I always had the exact opposite notion about Sirius/XM. I was seriously considering spending a bunch of cash shorting them back when they went really high (2001 or so). I wish I had. I never believed satellite radio would make it in the long run. Too many possibilities with new applications of terrestrial radio and cellular modems downloading internet radio with a slight delay (more selections, non-proprietary) into cars. And cars are really the only place where satellite radio makes any sense–if you aren’t moving, you’ve got too many other options (internet related).
I disagree. Gold is up 300% since 2000 while the S&P 500 is in the single digits if not negative. Financials tend to mirror the market as a whole, but right now bold investors are preparing to make millions. Companies come and go, but the sector isn’t going away. Solar stocks and alternative energy have done great and are down about 50% from their highs this summer. I have made a ton of money in this sector. Stick with the performers like First Solar (FSLR). I’ll search for a post I made here many years ago recommending Energy Conversion Devices (ENER). It’s had it’s ups and downs, but I’ve made a lot of money in it over the years.
Delta and KMart have not gone away either. But if you bought stock in them when they were tanking you lost every single dime. You want to avoid companies that will go bankrupt. There were articles around at least 2 years ago that pointed out that Ford’s strategy was consistent with a company deliberately running up debt in order to go bankrupt. (Note that execs make a fortune in these situations and directors don’t care. The major stock holders are funds who aren’t investing their money but are loaning money to the companies. Guess how they vote? They end up owning the company as secured creditors.) “Shareholder value” is a joke among corporate execs.
As for underperforming the market, I say the market has no idea what’s going on with video games. Look at this article in the Financial Times:
It’s rife with errors. From the Wii’s lack of staying power, to the “good reviews” of the latest Tomb Raider to the idea that there’s a lack of major releases in 2009. The whole financial sector mistreats the games industry like that constantly. No wonder people think it’s a losing investment.
VMW is majority owned by EMC. Both showed substantial revenue growth Q4 2008. Aside from restructuring costs related to acquisitions and layoffs related to such EMC had strong core operating earnings, as did VMW. VMW missed internal forecasts mainly b/c of the general economic situation, not poor performance specific to the company. They have a strong parent who clearly is investing in them as sees them as core to their enterprise strategy and growing market share…I still think think they are a good buy, volatile or not.
Justin Bailey & Joemama: I’m just reporting the numbers, and would hope that anybody buying stocks does their homework. Numbers are just that, but can provide long-term performance trends, as you know. GME being up today, when the market is up 200 points, doesn’t surprise me. As noted, it’s a volatile sector and big swings are to be expected. On an A-F scale, GME is probably a “C”. VMW, on the other hand, looks like an “F”. But who the hell knows?
In the realm of “Wallstreet makes no sense whatsoever”, consider Apple. In the past, strong product, strong financials, strong management, stable OS, etc. seemed to make no difference. Wallstreet punished that stock whenever someone ate an apple for lunch. It was and is bullshit. I’ve made money on Apple, but not without some serious teeth grinding.
Points taken…who really knows…I’m just bitter really - have not been a very risky investor (80% index funds) but have lost my tail in the last few months. And those investments are not “discretionary” - all 401K and defined benifit plan elections.
Only time will tell…I’m an accountant, not a financial advisor. I believe the economy will eventually recover, and anyone getting in now on companies that will survive (and even better, be well positioned) when the uptick begins should do well. Unfortunately few have the $$$ to invest now. Like you said, guess we’ll see…
If I was 30 years old, I wouldn’t sweat it too much, as the long term will pay off. But I’m 61, so very long term doesn’t work for me. I’m really chafing at having to sit on the sidelines while congress plays Russian roulette with my future.
Some of you guys are scaring me with what amounts to dart-throwing.
Betting on car makers is betting that they will get a huge bailout, and that it will work. The first seems reasonable to assume. The second, far from certain. Realize that GM would not make it through June without a bailout.
The same calculus applies to the banks. You are betting on the efficacy of the U.S. Government.
Before investing in any stock, before determining that it’s “cheap,” you need to read the balance sheet. Relative stock price does not determine “cheapness.”
Take XM-Sirius. If you’re considering investing because the stock is at a low absolute price, or because you really like their product, but you haven’t read this article Satellite Radio Still Reaches for the Payday - The New York Times or looked at the underlying balance sheet, you’re really just playing roulette. Sirius owes $1 billion in debt that needs to be refinanced this year. In the worst credit markets in history. And, they’ve never made a profit. There’s a very strong possibility that they won’t be able to refinance on anything other than junk bond terms, or that their revenue will not be enough to tread water paying the interest on such debt.
Maybe you are right, maybe you aren’t. The question is whether you actually made money because you know what you are doing or if you just happened to get lucky hitting on 17.
Having not read any of the above posts and not knowing anything about the stock market, I’ll suggest buying stock in Lowes. I bought some several years ago and have watched it decline ever since. But I read somewhere that Lowes stock is down because the housing market sucks. It went on to say that as soon as the housing market recovers and people start buying houses again, said people will have small home improvement projects and it should start bringing the stock back up. I guess it makes sense.
