Friday, July 9, 2010

Embrace the Fear

Double-dip recession?  I've heard lots of talk about it lately.  The fear (at least prior to this week) was palpable in the headlines and you could tell by watching the tape.  Nouriel Roubini was on TV again, and they were pulling other various people who are always bearish out to give us some scary headlines (Dow 5500, Dow 1000 etc).  I found a nice post on this over at Barry Ritholtz's Big Picture, titled Can the Crowd Forecast a Double Dip Recession? 

The economy is recovering.  The recovery may not be particularly strong, but it is happening.  Todd Sullivan at Value Plays has been laying out an excellent analysis of this during the past week.  Economic indicators such as auto sales and rail traffic have been improving.  And its not like the market is pricing in some huge V-shaped recovery.  It may have been heading that way in late April, but it certainly isn't now.  As long as we continue on a path of recovery, I think stocks will be very attractive.  With rates this low, the massive amount of cash on the sidelines will work its way back into the market.

So if you're a value investor who is interested in purchasing "companies" at discounts to fair value, you should embrace the fear, as it will allow you to make even better purchases.  Too many people let the market or the headlines tell them how the economy is or whether or not they should make this or that purchase.  I try not to operate this way, but unfortunately its just the world we live in.  Its important that we use this to our advantage.

I've been adding to a handful of names over the past two weeks, and will continue to do so it valuations become even more attractive.

1 comment:

Mike Roberts said...

My guess is that we all need to embrace the fear now more than ever if want that recovery goes well.