Monday, November 19, 2007

It is time to buy

Back in February I had written that it was time to panic! Ten months later it feels like the whole nation has heeded that call. Even permanent optimists like BusinessWeek, Economist and Money magazines have turned into bearers of gloom and doom this week.

For contrarians, this is the time to start buying. As with buying anything where the value is set by others, one should be prepared to buy at better prices, but many sectors, from financials to retail have bargains now for long-term investors. Stocks of companies like Citigroup, Moody's, Starbucks, Lowe's, Zions Bancorp are trading as if we are headed for a depression. While it is possible that we are about to see 1929 all over again, odds are that we are seeing a market overreaction at the extremes. The chances of a depression are real, and definitely a bit higher than what one would have guessed a couple of years ago, but the worst we will see is a prolonged (2-3 years), hard recession. For long-term value investors that should just be noise.

One sector where there is still too much optimism is tech. So, I would wait before buying big, though many like Symantec and SAP do appear attractive.

There probably are bargains even among home builders and lenders, but I find it hard to separate the good from the bad.

One thing is certain - buying a house now is recommended only for those who like to play Russian roulette! It was bad at the peak, and it is no better now.

Another area where pessimism may have reached a turning point is the outlook for the U.S Dollar. Will it start moving up soon ?


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