It’s funny how some investors never seem to learn. Throughout my career, year after year, I’ve seen cases where people were obviously paying either too little or way too much for individual investments and even whole industries or asset classes. Yet, an orator with the gift of William Jennings Bryan couldn’t have persuaded folks to do otherwise.
Why do investors make this mistake repeatedly, selling low and buying high? Maybe you’ve got a better explanation, but I chalk it up to crowd psychology. Here’s what I’ve found usually happens:
When prices are moving strongly in one direction (up or down), people will find a reason —any reason— to justify the trend. Investors may hang their hat on a particular trendy news item, such as "The Chinese are buying." Or, educated investors may simply look at the market action and conclude that other players "know something I don’t." In either case, crowd followers aren’t really thinking the matter through, but are letting the tide of events sweep them along. Don’t be one of them.
Bernanke’s Ba-Humbug?
Will the Fed’s latest move calm investor’s nerves? No, Jolly Old Saint Nick hasn’t arrived on Wall Street yet, but I believe he’s due any day now. It looks to me as if the massive tax-related selling that has depressed stock prices for the past few trading sessions is about to dry up. And investors need to remember that historically, December is the best month of the year for stocks, so odds are that the market will improve in the second half of the month.
Yes, right now we’re witnessing a lot of irrational, crowd-driven behavior in the financial markets. But am I worried? Absolutely not. That’s because as the market corrects itself, it always creates some amazing values for bargain hunters. And, like many of you, I love a good bargain!
All You’ll Want for Christmas are These Two
Bargain Stocks
That’s why now is the perfect time for value-driven investors to pick up a few great bargains. Two stocking-stuffers I’m watching very closely are a networking giant with excellent earnings momentum and a national retailer whose stock fell into the bargain bin on news November sales were less than stellar.
Bargain Stock #1: Ma Bell’s Favorite Son
Yes, I’m keeping a close eye on this networking behemoth which has had excellent earnings momentum behind it in 2007. But that’s not the only reasons I’m thinking of putting this stock under the tree this year. AT&T has just chosen this company to upgrade Ma Bell’s very own Internet backbone in 25 major metropolitan areas across the United States.
Bargain Stock #2: Right on Target to Become America’s Favorite Retailer
Another name in the bargain bin this year is a favorite retailer of mine. Now, the stock recently got hammered when this national retail chain announced mediocre November sales and warned of a less than stellar December. But, that makes the stock more appealing for my Profitable Investing subscribers. At a mere 14X next year’s projected earnings, though, this stock has lots of room for appreciation if the holiday shopping season turns out just a tiny bit better than Wall Street pessimists fear. A year ago at this time, it sold for around 17X forward earnings. So you’ve got upside potential of about 20% if the stock merely returns to a more normal valuation, making it a bargain on my shopping list—especially when it hits my recommended buy under!
Rallying in the New Year
Mark my word: Stocks prices will rally just in time for the New Year. In fact, this year-end market pole vaulting will push stock prices higher than you think.
Now, I’m not predicting a runaway rally like we saw in 1999, when the world breathed a huge sigh of relief in the aftermath of the Asia/Russia crisis. The housing problems we experienced this year will linger well into 2008. But as the Feds plan gets played out and investor’s confidence returns, stock prices will rise, giving all of us a nice bounce as we start to ring in the New Year.
The smart money has quietly built its holdings on the same stocks Richard Band has been buying at Profitable Investing for years! Get the seasoned perspective you are looking for and the names of these two bargain stocks posted in his December online journal! Sign up now for your RISK-FREE trial subscription! Richard Band’s recommendations for conservative investors have grown 900% since 1984! Don’t miss out! Click here to get started today!
