Traders as Investors
Traders and investors – however you want to define those two groups – don’t often see eye to eye. They look at the market and money in general in different ways much of the time. Right about now, though, traders should be thinking at least a little bit like investors. When all the dust settles – whenever that actually is – there are going to be some excellent long-term opportunities.
Yes, that is something a great many folks have been saying. The folks at Bespoke put together a listing of the stocks with the lowest P/E ratios in the S&P 500. Some of the valuations shown there for the stocks in question are crazy, unless you think the company isn’t going to survive. I’m sure you could come up with a really big list of similar names in the rest of the market.
Of course the issue is when to get in and how long to hold. It’s definitely true that markets like this can rebound very quickly, but I personally don’t think one needs to rush in. There are still going to be plenty of good deals out there even after it becomes clear the market has bottomed. As such, I’ve got no problem with waiting. It’s either than or potentially sit through some major drawdowns.
As for holding period, that could be a long one. Some of these stocks could easily triple in value coming off the lows, but who knows how long at will take. That’s why I would be inclined to call playing those types of stocks an investing effort, not a trading one.
Which of course isn’t to say that there won’t be good trading opportunities too.
From a general perspective, I agree with folks like Brett Steenbarger and others who feel that traders should also be investors. It’s worth putting money aside in non-trading vehicles to provide diversification and long-term asset growth.
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3 people have left comments
Posted on October 11, 2008 at 4:28 am
John wrote :
Traders and Investors are two different groups, however both of them are important. Holding stocks may generate some excellent deals. The result may sound good, if a trader adopts the perception of an investor.
John
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Posted on October 11, 2008 at 10:39 pm
ducati998 wrote :
John,
P/E’s based on “Estimated earnings” are fraught with peril.
Estimated earnings are projections of a trend. Trends, by definition are either right or wrong. Trends that break, are not rewarded by the market during a bear.
jog on
duc
Posted on October 11, 2008 at 11:16 pm
John wrote :
Duc – I will grant that using forward looking figures for P/E ratios does have some risk, but then any kind of analysis does. My broader point is that sometime in here is going to be a great opportunity to aquire good assets on the cheap.