Friday, September 19, 2008
Lehman, Merril Lynch, and AIG Lead to The "Unbubble"
I recently heard a description of the current financial situation as an "unbubble".
I think this is appropriate because it does seem that, like in a bubble, emotion is starting to get ahead of fundamentals.
They say that there are 2 main emotions in trading / investing: fear and greed.
Well, in a bubble, greed wins out over fundamentals, and the markets eventually come back to earth.
In this "unbubble", it looks like fear is starting to win out over fundamentals. For example, the remaining 2 independent investment banks (Morgan Stanley and Goldman Sachs) are relatively healthy, but are seeing their stock punished, and are being "pushed" into the idea of merging with commercial banks.
I think it is still wise to steer clear of most financial stocks, but this is probably a good time to start looking to buy good stocks in other sectors of the economy.
As they say, the big money is made by buying when there is "blood in the streets".
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3 comments:
Praveen, I strongly agree with you. Fundamentals are more important but, an investors should keep an eye on the investments made with some companies that is in the shutdown list or in news. What do you think about that?
Sherin - Investinternals
http://investinternals.blogspot.com
Hi Sherin,
I agree. I like to invest for the long term, and use my trading system to rebalance, but if I see that a stock I own is having bad news and looks like it will go out of business, I see that as a red flag, and would think about swapping it out for another stock.
Praveen
It is true what you say about buying 'when there is blood on the street'. In my opinion I think the best way to do this is invest a set monthly amount into an agressively managed fund.
By investing the same amount each month you are insulating yourself (to a degree) from wild movements in the market. If you were to invest all your capital in one go then it could be a lot more risky.
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