First posted on October 2, 2008
Just because a stock looks cheap doesn't mean it can't go lower.
With General Electric (NYSE_GE) trading around 22 1/4 today it looks cheap, but can it go even lower? The answer is yes. The last time General Electric traded at current levels was back in October of 2002. Now add in inflation and General Electric is even lower today than it was 6 years ago!
Despite the fact that Warren Buffet invested 3 billion dollars in GE preferred stock giving him a 10% yield, I see no reason to buy GE. The deal Mr. Buffet received was a deal that every investor would love to have in their portfolio. The bottom line is the trend for General Electric which is on the downside and it shows no signs of turning around at this point in time. I would rather buy General Electric at let's say 30, knowing that it's going higher than trying to pick a "value bottom."
Watching CNBC this morning, Mark Haines who has been around for a long time in the financial world made a statement that the buy and hold strategy is no longer a successful strategy in the stock market. I have long held the belief that the world has changed and you can no longer just buy a stock and hold it forever hoping that in long-run it will go higher. We only have to look back at a recent blog commentary on General Motors (NYSE_GM) to see that this is a flawed strategy. Looking at General Electric today proves once again that we are in a trading world and not an investment world.
I understand many of you will disagree with that statement but the truth is the markets have changed, not just domestically here in the US, but globally. Now, the US has to contend in a competitive way with China, India and Russia. The US is in a much more competitive world, where fortunes will be made and fortunes will be lost.
At MarketClub, our mission is to help you make money in this ever-changing market. We are still waiting to see what the outcome will be from the rescue package, bailout package, save America package, any name you want on it package.
No one is going to be able to predict what will happen to the market, except the market itself. We've talked about this in the past. The market is the ultimate mechanism for price discovery.
I do not believe that the current global economic slowdown is going to turn around any time soon. I don't expect to see a "V bottom" in the stock market and that "demand destruction" will force a retracement in many markets that were very much in demand just a few months ago.
So here's my advice... the one thing we do know about the markets is that they a reflection of human nature. Having said that we would want to pay attention to our "Trade Triangle" technology. Those of you who are MarketClub members, follow the "Trade Triangles" because they will keep your emotion out of the market and show you which way the market is headed. For those of you who are not MarketClub members, you should be looking at some sort of technical analysis to help you avoid stock meltdowns.
It doesn't matter what markets you trade because there are always opportunities to make money in the trading game. Our mission is to present those opportunities to you in a very easy way to understand.
Every success in what can only be described as an interesting, turbulent and opportunistic time.