The market has been trending down for a while now. Bear Market rallies are sucking in dip buyers only to have them tested with further declines. As the markets drop, investors’ and speculators’ resilience will continue to be tried. Where is the point of capitulation that they will lack the intestinal fortitude to stay the course? No one knows, but it’s like a game of chicken – don’t blink!
Companies with little or no earnings are challenges in such a market. After all, there are no earnings to judge their performance. We have seen many such companies drop 75 to 90 percent! The stories have been providing sizzle, but not steak. Without earnings, the evaluations get very hazy. A 300% return is required by a company that dropped 75 percent to get back to even while a 900% return is required by a company that dropped 90 percent to get back to even.
Is the answer just hold through the downturn? While everyone knows holding long-term will usually provide good returns. Holding is not always the answer. A dividend paying, fundamentally sound company with a good earnings history will likely drop significantly in a down market. But… the investor will receive a dividend payment while waiting for a recovery in price. A “no earnings” company will feel even greater economic pressure, possibly going out of business.
For a long time, the story has been growth, growth, growth. When the “wheels reverse”, the same circumstances are viewed 180 degrees differently.
At this point in the market, boring can be so beautiful! Time and compounding are your friends, but you have to stay in the game with quality companies to benefit.
Steady as she goes! Man the jib mate, more rough seas on the horizon.
Be smart, be well-read, be aware and be successful
