Saturday, March 03, 2007

Stock Market...down

Last week has been quite rough, eh?

If you held PALM then you must have made a killing. PALM went up more than 10% due to some rumors of buyout. If you held that stock, good for you. My portfolio had a tiny amount of PALM but it was okay. I sold mine not because of nice run up but for the reason that it is over priced now with P/E more than 20. That is 'buy low sell high'. Here the reference is P/E and not price. Price is way too subjective and is based on how Mr. Market feels on any given day.

Down market also provides nice opportunities to start buying. But, do not expect the market to come back very strongly. Not because of any fundamental reasons but people I guess have seen rising market for quite some time. When they see the same trend, they have to do something differently. It's all behavioral finance. That's it.

Some people choose to hold on to appreciated and over priced stock to avoid short term capital gains taxes. That is not a very good idea because you do not know when your stock is going tank. When investing actively, do not go by short or long term gain. If the price (as determined by P/E) is above 18 or 20, SELL. That's assuming you bought the stock when it traded below P/E of 15. Buying anything more than P/E of 15 is not very wise. Greater fool theory that you can sell  it some other person if you bought an over priced stock can be sheer wishful thinking.

So, what are some good buys now. Toyota motors which has gone up by more than 30% in last 6 months or so is still an attractive buy as it's around P/E of 15. Pricey stock but worth your hard earned money. Also gives decent dividends.
Tata Motors (TTM) is also a good stock around P/E 15. Moreover, Indian stocks have been swinging quite a bit. So, this may present an opportunity to make some quick money. Most of the other Indian stock traded in the US are very over priced, especially IT companies. Even considering explosive growth in Indian economy, anything more than 20 P/E is still a way too high.

DELL may become still cheaper. Then it may become a good buy. This is because the management team seems to have been kicked in the pants with founder Michael Dell coming back into active management. So, keep an eye on DELL. Also, if DELL goes down, it is going to take down few other stocks such as WDC and other, so they all become attractive buys. One thing to be careful is not buy too much into the same sector but if companies are good, go for it.

AMAT is another great buy. AMAT, largest semiconductor equipment manufacturer, is trading at a very attractive price. AMAT also acquired Brooks Software a few months back. This is going to be great thing for AMAT as Brooks Software was the most comprehensive software provider for the sector and AMAT is going to become one-stop-shop for semi conductor automation. OK, I have some bias as Brooks Software is one of the companies I worked for in the past. I would like to see anyone who acquired all of our hard work prospers and makes all those nice people part of AMAT rich as well :)

Overall, down market is the time to fish for great buy.

Cheers!


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