Wednesday, March 11, 2009

Has Fear Blinded Investors to Value

Simoleon Sense brought to attention an article on the Wall Street Journal that I found interesting.

Should shares in Kraft Foods really be so low they have a dividend yield of about 5 ½%? What about A T & T (7%)? Or DuPont (9 ½%), Altria (8%), American Electric Power (6%), British Petroleum (9 ½%), drinks giant Diageo (5%) cellular network giant Vodafone (8.5%), Merck (6 ½%) or a host of many others?

You be the judge. These are not individual stock tips. You need to do your own homework. And of course dividends can be cut. If business keeps getting worse many will be, right across the market.

But these are, on the whole, pretty solid companies. They are not financials. You'd expect their businesses to hold up pretty well in almost any circumstance except the end of the world. Any one or two companies can get into difficulty, of course, but it would remarkable indeed if they all fared badly.

The "efficient market hypothesis" used to claim that, when it came to the stock market, "the price was always right" – in other words if, say, "Jellyfishforpets.com, Inc." was trading at $180 a share, then by golly, that's what it should be trading at, and who could possibly say it was overvalued?
As I read this article, I couldn't help but agree with how efficient market theory is dead. It also led me to wonder how Universities will change their course material. If 2008-2009 doesn't prove that efficient market theory is rubbish, then I don't know what does.

There is a continual fear that the Dow could drop another 50% to the 3000 level, but if you remain in the game, stand your ground and wait it out, then the rewards could be enormous. If the market completely implodes and the US and global economy goes with it, then our money would be worth less (or worthless) anyways.

As I continue to search for the screaming bargains that jump out, it's difficult to ignore where the market is and how bad my portfolio is doing, but then again, anything that is profitable cannot be comfortable.

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1 comment:

  1. This is absolutely true that there are some really cheap bargains in the market. Everyone knows that common sense is to buy when market is down and sell when it goes up. However, because of fear, we always do other way round.

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