Normal Stock Guidance Doesn’t Apply

Normal Stock Guidance Doesn’t Apply
Extreme Conditions May Distort Normal Market Evaluations

By Ken Little, About.com

In a normal market, I would (and have) advised that investors look for bargains in stocks that have fallen into the value category.

A value stock is one that has been under-priced by the market. Value investors look for these stocks and buy them at a discount to their intrinsic value.

When the market corrects the price of the stock - meaning others have discovered this under-priced gem and are buying the shares - the value investor pockets a nice profit.

One of the keys to this strategy is the phrase “normal market.”

The market of late is anything but normal, in case you hadn’t noticed.

If you are confused about what to do in this market, don’t feel like you’re alone.

Experts are confused and frustrated by market conditions that don’t fit the typical models.

With large swings from low to high and back again, the long-term investor may be better off doing nothing.

If you are invested in good companies, you are probably better off sitting tight and waiting for the current crisis to work its way out.

This is not a rule, but a suggestion. If you are so concerned about your investments that you can’t sleep, then take whatever steps you need to protect you mental and emotional health.

No one can tell you with certainty what is the proper course of action.

Normal markets will return one day, but there is no way to know how long that will take.

In the meantime, if you spot a good buy in a stock, consider whether you are willing to hold it through more turbulent times that are surely to come.


http://stocks.about.com/od/evaluatingstocks/a/092208Marrisk.htm