Imagine this scenario, you own a profitable subway restaurant and that you are trying to sell. You find a seller and agree on a price of $250,000. He says I'm going to go on vacation on monday & tuesday and I'll be back on wednesday to buy the business. When he arrives he says, I'll pay you $225,000 because you know the mkt went down 5% each day, for a total of 10% so I took 10% off the price. You say give me a break! Really the only news was that they passed this bail out, there really wasn't any news warranting this move. Just because they passed this bailout doesn't mean that earnings are necessary going to be effected. You say the price of the business is really determined by the net present value of all future earnings, $250,000 or no deal. So what I'm thinking... is if there is really no bad news that says companies are going to earn 10% less, then why should companies prices be reduced 10%. The market went down because of panic, the price of the stocks should not reflect the panic but only the net present value of future earnings. So it's time to go long!! Opinions?
you are a fool all those before you calling tops and bottoms are fools as well one day perhaps you won't be a fool but today you definitely are
would you still buy the resturant if their product was discovered to cause cancer? what would future earnings be then?
I understand what you're saying I think people who call tops and bottoms are fools too and quite frankly I think anyone who calls market direction are fools. But I was just wondering what you thought of my reasoning
I am like you. I am looking at what the multiples on these companies and the prices that they are. I am a newbie and new to technical analysis. I can do a DCF like no one's business - not that it is helping me now! I have been burned at least 4 times already. I started last week of August. I finally get it. I will be buying an ETF that shorts the S & P tomorrow. I know I'm an idiot but it has been beaten into me to invest for the long term. Don't fight the trend! It's hard to try to swim against the tide. Don't do it.
Because of the problems in the credit markets the cost of capital has gone up that means the price and value of equity goes down. For the above poster did you include this in your DCF model?
Couldn't agree more. Sure, this may or may not be a short-term bottom, but people need to keep things in perspective from a historical standpoint. Our last recession (01-03) resulted in a ~49% drop from S&P 500 peak to trough before rebounding into the next bull market. As of close today, we are currently down 38.6% from our recent S&P peak in Fall 08. US markets, in addition to those world-wide, arguably face a more serious situation than the 01-03 US recession/tech bubble. A simple tip for the newbs just getting into the markets, one that has worked well for a century and is ideal for IRA accounts etc. Carefully track what sector(s) holds up the best in this recession/bear market. When the S&P500 50-day daily crosses back up over a positive divergent 200-day daily for no less than 2-4wks, it's time to get very bullish on those strongest, best weathered sectors (ex. biotech current leader). Be short on the reverse 50/200 action. As of close today one of my retirement accounts is up 71% utilizing SDS Proshares 2x SP500 Ultrashort ETF, coinciding with $SPX 50/200 cross @~1400.
Not to single you out, but when traders with 1 month under their belt start shorting at 5-year lows, the contrarian in me starts really waking up... A tradeable bottom should be here soon.