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August 16, 2007


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As for #6 . . . I'm one of those "keep your mortgage and invest" turkeys, and I haven't changed my behavior during this time. Well, I have, and as you mentioned, I am buying more than I would be otherwise. Like you, I think this is short term hysteria and the market plunge has very little substance. Now is the time to hang on, buy in, and wait. I don't know how short term it will be, or how much lower it will go . . . but I want to be sitting pretty on the other side.

You are absolutely right. if you are a long term investor and have cash to invest you investing at these times when everyone is selling. the idea of investing in mutual funds and not individual stocks is that you trust the manager to do the trading and you should not have to. Add more money to your funds and let the manager do the selling/ buying. In the long run it will always work out. Good luck.

Or better yet, buy a fund that doesn't use a manager (index fund). Save yourself some cash and don't put your trust in people who lose to the index 70% of the time. :-)

I'm not sure about #6 - I am pretty big on 0% loans and investing instead of prepaying my mortgage, but I am not having any problems. ;)

My long-term investment strategy still stands and my short-term 0% financing was locked in at 6% CDs because I could see this coming from a mile (or 2)away. I started to wonder if I was too rash in all the CDs and attempted market timing but I am feeling pretty good these days. Regardless I Wasn't going to borrow 0% and put it in the stock market if I had to repay it in the next few years, I am not an idiot.

Ironic since today I was just thinking that with a sound financial play none of this means little to our family. We don't "rely" on debt for anything and my job is rather recession proof. Not many worries here. My 0% financing and other cash will give me some pretty decent returns in what is looking to be any iffy year for my stock portfolio. So win win.

Share your sentiments and put about 7 more limit orders in last night. I have a question about #8 though. Sounds like you would be "upgrading" to a newer house. While the math is still on your side don't forget that because the market is down when you sell your existing house you will have to sell that at the "lower" prices that you are taking advantage of when buying your new house.

Now granted if you buy a more expensive home at a the same discount you sell your old one you still come out ahead and the fact that you could keep the old house without having to sell right away also bolsters the case. Ok fine it sounds like you thought this through :-)

I think you are spot on with this, except that there is a loss of billions of dollars in failed mortgages and more to come for a couple of years. This has to come out of somewhere, and I don't think we've seen the drop finish yet.

The market's down big so far. If it stays down, I'll be putting some more into an index fund about 3:30 pm today.

I applaud your boldness, but do not forget about March 2000 when the market tanked for two full years. We must learn from our past, lest we repeat it in all its gory misery.

Bronco --

Yep, I bought all the way down that time too. All those purchases looked pretty good five years later. :-)

I couldn't agree with you more that people just need to hang in there. In the long term, this is merly just a blip on the stock charts. The fundamentals for all of my holdings all seem strong, they've just dropped due to unjustified panicing.

panicing, yes. but unjustified? on what do you base this evaluation?

How will the mortgage crisis impact companies that are totally unrelated to the mortgage industry? Very little. (Yes, there will be some impact, but not dramatic.) And yet, while the fundamentals of those companies have not changed (and we're talking the vast majority of the S&P 500 here), their stock prices are taken down with the rest in this big over-reaction.

It's the lemming mentality at work.

To a degree, I would agree with you FMF. But, as people's ARMs reset (up!) they will have less disposable cash that feeds into the rest of the economy, ie retail, consumer electronics, etc...

This is the caution that recession may lie ahead. All this bad debt must be worked out. I would prefer to see a bottom first and then pounce. Markets are less efficient when things happen so rapidly as there is less time for dissemination of information. Keep your debt and invest, as long as you don't need your returns to pay it off.
That is too risky even for me.

unlike 2000, there are plenty of companies that have no exposure to subprime mess. the fundamentals of those companies haven't changed, except people are panicking. i'm with others, buy, buy, buy. that's what i've been doing this past week. remember the markets are still up for the year. people forget this in the wake of the wild waves the past couple weeks.

it will be some time before we actually know the outcome of the subprime mess; however, people forget that subprime loans are a very small portion of the mortgage market. people are acting like it is 50% of the mortgage market when it is under 10%. even then, not everyone will be foreclosing or defaulting. are there funds that invested in some of these mortgage companies? yes, but again, we're talking minor amount in the big scheme of things. as soon as people start to realize this and stop panicking and the actual impact numbers come into play, the markets will calm down again.

recession? not in the near future. let's just hope that people will relook their credit exposure after this. i doubt it, but it is a hope.

Lord --

You said:

"I would prefer to see a bottom first and then pounce."

This is a GREAT strategy. Can you please inform us all when the market hits bottom and will only increase from that point. Then we can all buy in!!!! ;-)

now that made me laugh!

I agree with Tim. The reference to the steady drop from March 2000 into 2003 is way off base. People were paying absurd prices for technology companies that weren't making any money! The S&P 500 P/E ratio was over 30, right now it's not even half that (read: companies have the earnings to back up the recent run-up the past few years.)
FMF you're right on. If you are a long-term investor this dip shouldn't affect your strategy.

JGInvest26 beat me to the punch. Current P/E ratios are half where they were in 2000. This is a *much* more reasonably priced market.

Here are my firm beliefs on how to survive in the stock markets during these times of economic recovery:

1. When the market is getting bearish it is always smart to buy shares of stock since their index and par values are lower, however caution must be made on this strategy, to procure stocks only on firms that are stable and whose track records are always providers of sharing their equities to shareholders as well as providers of stock dividends.

2. As the stock market is getting jittery as always the rule is never to be affected by the fluctuations in the market, those who speculate for the get rich quick schemes in the stock games are the biggest losers. Play and purchase stocks on a going concern basis or in other words for a long periods of time. Those who time the Dow Jones will set themselves on fire. Give time, buy time and invest time when investing in stocks - the market will always effect their corrections in the long run, give it time to provide you the leverage of revenues.

3. The rule in the stock market is always " Life is not a spontaneous combustion, you must set yourself on fire." Never enter the stock market half hearted, never go to the battlefields unprepared. It is always a wise advice to have automatic ten percent deductions in your salary for investments in stocks. Whether the market goes down or high your savings are always invested in buying the part ownerships of firms and companies which you choose.

4. In buying shares of stocks you must always make some queries on the nature of business that you intend to purchase. Look at their Financial Statements, Cash Flows, Statement of Changes in Financial Operations and their Schedule of Owner's Equity. You should ask questions like: Is the company liquid in terms of their cash and near cash accounts? Are they earning profits? or Are they are in the red? Are they facing suits? Do they have the goodwill of the community? Is the business engaged in sin products? Do they have tract records of granting cash, stock and stock options to share holders? These are some of the salient questions which you can entertain before buying the stocks of companies during these ambivalent economic times.

5. Remember that the millionaires has a unique way of looking at the stock market that is why they are rich and affluent, the cycle goes this way. When the market in the Dow Jones becomes bearish the rich would start buying their shares of stocks since the par values are at par and low. Then they afford and buy time so that the market will initiate the corrections or in other words wait until it becomes a bear market when the par value goes high, once it gets high or higher with an ample profit margin and mark up of 3% to 7% they unleash their stocks, dispose it, sell it and then buy properties - real estates, buildings, hotels, apartments and yes, even jewels and gold bars. After which, wait again for the market to become bearish or when the par values will go down again, then buy stocks again and wait for the market to make the corrections and once the profit margins are assured dispose the stocks again and buy income producing properties and then goes to the stock market in the Dow Jones and wait till it becomes bearish and buys stocks again and that is the reason why millions of millionaires are produced in the particularly in Los Angeles.

6. Never discount the flow of business connections that it will provide you once you become a share holder, remember once you own a single share of stock in a company you become a part owner of that company. There is that magic, that good vibes it will have on you, the good aura, it will be the current that will serve you and that will lead you to fortune rather than go against you as what Julius Ceasar once said. This is the reason why there are so many companies who are also major shareholders of other reputable firms in the business world today.

These are just some of my bench marks which I fully believe can help you decide in your financial dealing when it comes to purchasing shares of stocks in the Dow Jones.

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