Posted by Jack
Yeah, it was another bloody day on Wall Street. But, I took a look at some of the stocks I bought recently and then I compared them to the best price one would have paid for them in just the last 6 months. The 15 well diversified stocks I picked were all rated 3-4 stars by S-P, so these are not dogs; these are good quality stocks on the NewYork Exchange and they had a total value of $499,600 in that 6 month window. Today, thanks to fall of Lehman Bros., Fannie, Freddie, Bear Stearns and now AIG, the value of those stocks is a mere $154,000. That represents about a 70% drop and this is not unusual for many portfolios, but it also hints at bargain basement prices and that final big sell-off before the market begins to recover.
Thankfully I didn’t suffer anything close to that 70% drop. I’m actually up a little because I bought these stocks and others at greatly depressed prices. But, timing is everything and what if this is just the beginning of a market collapse? Will that $154k investment be worth $100k next month? Maybe. But, I look at it like this; the companies I own won’t be destroyed unless the market implodes and if that happens we’re up the creek without a paddle anyway. Paper money will be near worthless. My bet is that in time most of these besieged stocks will recover at least 50% of their 3 year average price (and that is a very conservative bet) and that represents one huge profit for those who bought in at their lows and took advantage of this fire sale, especially in the financial sector. I can’t believe you can buy shares of Goldman Sachs now for a $100! Wachovia is $9 a share and General Motors is $10 bucks.
In the long run I believe stock investors will be greatly rewarded for their courage and foresight to buy on these wild dips, but this is just my opinion. No guarantees here folks! Like I always say, you must do your own due diligence and I hope you can time the market according to your risk tolerance.
NOTE: I say this even after my rantings about the government buying up AIG stock and nationalizing Fannie Mae and Freddie Mac. In truth our economy is resilient and in the long run we will weather this storm, even though government might muck up the recovery a bit.