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Fundamental Investing: A healthy outlook

Posted January 23, 2008

"For the next year or so, vogue investing is out. That mentality was the snack food binging that made our economy sick and overweight. Look toward the healthy firms that are essential to keeping the nation's heart pumping." – Andrew Snyder 

By Andrew Snyder 

Baltimore (TFN) — The human body is an amazing machine.  In an emergency, it always knows just what to do.  As the system weakens, our bodies begin switching off our non-critical functions one by one.  As long as our heart is still covering our brains with oxygen-rich blood, we will survive.  After that, all other options are considered optional.

The story is much the same when dealing with emergencies in the financial markets.  As long as money is flowing and traders remain active, there is money to be made.  The recent downturn in the equities market is a major shock to the system, but we will survive.  We just need to get back to supporting the fundamentals.

An apple a day

Earlier today, Apple (AAPL:NASDAQ) announced record-breaking earnings that easily beat Wall Street estimates.  Still, the company's share price has been slashed by double-digits.  Why?  Simple… our system is shutting down non-critical functions.

As I write, Apple boasts a market cap of over $136 billion, higher than Ford, General Motors, and Time Warner combined.  In an economy that has slammed on the brakes, it is an incredible valuation for a company that merely plays a supportive role.  It is a valuation that is likely to be slashed even more. 

It will be the same story at nearly all businesses that rely on huge sums of discretionary spending.  For the last five years or so, our economy has been running on adrenaline.  Share prices soared like a racing heart as traders anticipated growth.  They hiked up share prices far beyond their traditional valuations.  It was okay as long as the system was healthy enough to carry the weight.

But now our economic body is ill.  It is purging itself of non-necessary weight.  Hundreds of companies will see their market caps slashed to a fraction of their adrenaline-induced highs. 

Not all stocks will be stricken.  The companies our system relies on for health and balance will continue to prosper. It is economically essential. 

A healthy investment diet

Now is the time to get back to fundamentals.  Start your investment research by truly understanding the role of a company in our economy.  If it has a healthy, supportive role, continue on.  If the firm has a traditionally sound valuation and has a strong balance sheet you can be sure it is a good, long-term investment. 

For the next year or so, vogue investing is out.  That mentality was the snack food binging that made our economy sick and overweight.  Look toward the healthy firms that are essential to keeping the nation's heart pumping.  Those are the ultimate winners that will ensure healthy profits long into the future.


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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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