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Dave’s Investment Blog » 2008 »
Dave’s Investment Blog
Welcome at » 2008 »

Are we there yet? Have we reached financial Armageddon? Should we all just sell everything put all of our cash into gold bullion, buy a lot of canned food, weapons and get ready for the new Dark Ages?
We have achieved new levels of irrational depression. We all just want to run away. We thought we couldn’t take any more pain and today the stock market heaped some more pain on the Bulls.
The Bears loved the action in the stock market today, this month, and this year! I’m a fan of the NFL Chicago Bears and the U.C.L.A. Bruins. I’m not in favor of the Stock Market Bears who are having their time now. Let’s face it, the time of the Bears is coming to an end.
You want to know why, don’t you? A great sale of money generating machines doesn’t come along that often. Last time the S&P 500 was at these levels the earnings yield was 5.2% in 2002 or in 1997 the earnings yield was 5.1%. If the S&P 500 stays at this level through the end of the year the earnings yield will be around 9%. If the S&P 500 remains at this level through next year the earnings yield will be 8.7%.
I believe in regression to the earnings yield. If the normal earnings yield is 5% the S&P 500 would have to rise to 1346.15 next year. 1346.15 is 66% higher than the closing value of the S&P 500 today.
If an investor sells now, they clearly didn’t identify the top of the market last October. They obviously believe the market is going lower and they will get back in before the market goes above where the market is trading now. This is a fool’s game.
I don’t know if this is the bottom of this bear market or if we have another 10%, 15%, 0r 20% downside. I know valuations are stretched to the downside. I believe if the market regresses to a more normal level of valuation we are looking at a move up of more than 60%.
Think of it this way. There is a 40% likelihood of a downward move of 15% and a 60% likelihood of an upward move of 60% or greater. The net result of these two outcomes is a positive gain of 30%.
This means you can’t go wrong with long now! Buy low sell high is the best way to make money. Prices are low, so buy.
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Have a Profitable Day