Posted by alexg

With commodity prices soaring, a housing market that shows no sign of a rebound and billions of write-offs taken, one would figure the market would have crashed by now. Unfortunately, that is not the case for bears in this market.

Bears could not ask for more bad news, yet the market continues to hold its ground. On the other hand, the Fed will do anything to keep the economy from going into a deep recession and possible depression (Bear Sterns?). In addition, billions of dollars sits on the sidelines as sovereign wealth funds and now private equity scoop up bargains ( Washington Mutual) at the expense of shareholder dilution. The truth is most, if not all, of the bad news is already priced into the stock market. Anyone shorting this market will have a tough time fighting the fed. Also, institutional buyers will start scooping up bargains. Famed value investor Bill Miller has already called an end to the credit crisis. Marty Whitman has sent a letter to shareholders stating “Its time to buy”.

Whether we have seen the market bottom remains to be seen. For the past two weeks the debate has been the focus of a value investing club that I belong to. One thing the club does agree on is 3-5 years from now, financial stocks will be worth more than than they are worth today. This is part of the reason a value trading forum has provided some of the best laughs. When it seemed as the world was coming to an end, traders provided the following headlines:

“ I’m not sure how much you know about trading, but when the stock gets beaten up too much and hits 52-wk low. Sometimes, it has what’s called “a deadcat bounce”.

“I shorted AIG at 47.30 today.(the same “value” investor would later post) “I cover AIG at 46.21 after hours here since I was sleeping. I should have put in a limit order below 46 to sell during the day. Oh well, I am learning after all”

“Shorted it today between forty-seven and forty-seven and a quarter.”
What happens next? The “value investor” switches his mind……
“I am not longer short this stock”

Again, this is coming from a value investing forum who model themselves after Warren Buffett, Ben Graham, etc. I guess they did not get the memo about Graham and Buffett not trading in and out of stocks. One Warren Buffett quote that I keep in mind when watching other investors trade constantly goes along the lines of:

“We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.”-Warren Buffett

Disclosure: I own shares of AIG through an investment club

If you enjoyed this post, make sure you subscribe to my RSS feed!