Market plunge: Value investor’s paradise
Today's Financial News - Posted October 6, 2008
Investors are suffering from a dramatic blow today. American markets have dropped back to valuations we first saw in 1999. The drop hurts, but it is not nearly as bad as what the rest of the world is facing.
By Andrew Snyder
Baltimore – (TFN): Is this is a day that you will remember forever? Will you someday tell your grandkids, “I remember exactly where I was on October sixth, the day the global markets panicked?”
I have a hard time believing today will live up to the kind of infamy days like 9/11, Kennedy’s assassination, or the space shuttle disaster lived up to, but it is still going to be one of the most monumental days in the world’s financial history.
The real question is, will history view it as a horrific day for investors or a day filled with opportunity?
As I you read this, markets across the globe are panicking. Brazil was forced to stop trading this morning when its market almost instantly plunged by 15%. Russia’s circuit breakers popped twice, halting trading both times as its markets hit the 15% threshold.
The fact that Wall Street is down by mere single digits is a sign of American strength. While we may not look so strong in the wake of a trillion-dollar bailout and the near-catastrophic collapse of our credit industry, we remain one of the strongest nations in the world.
Why else do you think our markets are down by mere fractions of the declines made by our competing nations? Why else would the dollar be gaining strength? Why do you think investors are tripping over themselves to get their hands on government-back Treasury notes that pay almost zero interest?
It is because the United States is a financial powerhouse and will remain one throughout this crisis and far beyond.
U.S.A is still number one
This country’s financial markets will sport a black eye for some time and our economy will stumble before it gets up and runs again, but rest assured, we will be running again. And, thanks to a capitalist backbone, we will be running faster and further than any of our competitors.
The economy is a special beast. It runs much like the human body. It has the ability to heal itself and it can adopt and overcome almost any obstacle. Just as our bodies adjust to a lack of one sense by amplifying our other senses, the financial markets adjust to overcome devastating voids.
The widespread overuse of financial leverage was a cancer infiltrating throughout our economy. We all knew it was there and it we fully realized it had the potential to kill us. Yet like a smoker craving another pack of cigarettes we did nothing about it.
Fortunately, the world’s free markets took care of the situation and eliminated the cancer. The carnage we are seeing across Wall Street and the world today is the results of financial irradiation.
There may be a huge hole in the nation’s economy, but the cancer is gone forever. The damage is merely temporary.
The value of almost every public company in the nation is down by 20% to 40% over the past year. Tens of trillions of dollars in wealth have been eradicated.
Investors may be running in fear, pulling their money out of the markets as fast as they can. But soon, the panic will subside and they will realize there are a lot of companies out there trading for pennies when they should be trading for dollars.
Value investor’s paradise
Now is the time to take a stake in these investments. Fear has trampled their valuations, yet their fundamentals remain.
One company worth looking at is Boeing (NYSE:BA). The company is a global titan that should see its share price rising thanks to a strengthening dollar. But it is down by more than 7% today on fears of a global slowdown. It will not stay down for long.
Its quick decline has made some of our readers a lot of money, as I recommended buying the company’s February 55 Puts (BANK.X) a couple of weeks ago knowing the mess that lied ahead. Thanks to the market turmoil, those options have increased by over 75% in value.
If you followed my advice, sell your position and lock in those gains.
The market is about to correct its mistakes and heal its wounds. It will begin adding dollars onto Boeings share price. Hundreds of other companies are in similar situations. They are dirt cheap today and smart buyers will go on a spending spree.
The world is in a panic today, but it will be a quick downturn. In the world of instant information, the discounting of Wall Street after massive deleveraging was quicker than most experts anticipated. We are already down 40% from our highs reached a year ago. There is no room left to drop.
The markets just yanked off a dirty bandage. The pain was quick and sharp, but now the healing will begin. Massive amounts of leveraging are gone. It is time to go shopping for great values.
Next Article: The Omaha Principle: Tyco (TYC) is waaaaay undervalued
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