Daily Posts Archive

Stock prices are determined by people. People who drive stocks to irrational heights and sell them to irrational depths. Take Crocs for example.

Last year one of the market’s biggest winners was Crocs (CROX). Most people just call them plastic, but we made a lot of money in the stock, and therein lies an excellent opportunity for a lesson in Romance, Transition and Reality.

As I’ve written in recent weeks, there are ample signs that the market’s bear phase is close to (or has already reached) its end point. I won’t rehash all the signs here (double-bottom in the indexes, new lows divergence, Bear Stearns bad news, etc.). Instead, I want to take a few paragraphs to dispel a common belief among most investors-that you must get in as quickly as possible to make big money in a bull market.

I didn’t have a strong business agenda for my visit to China. The real purpose was to put a face on the place, so to speak. I was fortunate to hear lectures by people with extensive China experience and to go on a couple of interesting factory visits. But the investing system used by the Cabot China & Emerging Markets Report doesn’t make a lot of use of the kind of “look-them-in-the-eye” analysis of management that is popular with large institutional investors.

Microsoft (MSFT) bid $45 billion to buy Yahoo! (YHOO) back on February 1. My investment perspective on these companies is two-fold. First, every investor in America knows these companies. It’s going to be very hard to beat the market by investing in them. Second, those companies are going down the same road traveled by IBM decades ago.

I’ve received a bunch of questions regarding the Visa IPO this week. Many believe, because MasterCard (MA) turned out to be such a good investment, that Visa is probably a good buy. My answer to that is ... maybe. From a technical perspective, the game plan is obvious: Do not buy the Visa IPO, but do keep an eye on the stock. If it can form a relatively tight consolidation and if the market can show real signs of turning up, then you could consider taking a position on a breakout. It takes some work, but the rewards can be worth it.

I recently visited Ruth’s Chris steakhouse in Boston for a wonderful meal. Despite the stigma of being a chain, every meal has been absolutely terrific. Ruth’s Chris (RUTH) just came public in 2005, but has since slid from the mid 20s to 6 1/2. Revenues have grown fairly consistently, but earnings were cut in half during the fourth quarter, and projected to shrink some more this year. The stock just hit a new low today! Thus, I think it’s a good idea for any steak lover to visit one of the premier steakhouses in your area every couple of months. It’s a real treat! But when it comes to investing, the message is clear: Enjoy the steak, but avoid the stocks.

Now is the time to formulate a system that works for you. You’re more than welcome to start with the general philosophy from one of our newsletters and then tailor it to your own personality. Some rules, like cutting losses short when buying growth stocks, are absolute. Others, like how to sell can be adjusted to your own trading and investing goals.

The stock market and the individual stocks that make up the stock market have always bounced back and forth from overvalued to undervalued to overvalued.

Warren Buffett has said, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” What about us ordinary investors who can’t wait 10 years? I have an easy solution-- I buy when a stock is undervalued and sell when it becomes overvalued. The time frame is usually about two years. The basic principal is simple: the stock market and the individual stocks that make up the stock market have always bounced back and forth from overvalued to undervalued to overvalued, over and over again.