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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1853  
Subject: Re: WAG to add clothing line Date: 4/4/2008 12:20 PM
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I was (am) leaning to some financial stocks like Wells Fargo and Bank of America (but can't pull the trigger in these times).

Nor can I. Frankly, I have no idea what these guys do or don't have in their vaults and portfolios, so I am steering completely clear.

Unfortunately, I am not sitting on a lot of cash

Fortunately, I am. Unfortunately, a fair amount is in laddered CD's, maturing in April, June, and next January. I'm thinking the interest rates are not likely to be matched if they roll over ;(. I have bunch more sitting in savings accounts, a result of stockpiling a fair amount for an ISO stock option in Mrs. Goofy's company. However business isn't so good, so we've only exercised a part of it, leaving me with lots of cash giving very little return. Who says cash is good?

I can't say I disagree in toto. Unfortunately, I am not sitting on a lot of cash, but I am planning to make some major changes soon (I too judge that the market has not reached its bottom, but I am not a bottom feeder; I am just measuring where the best opportunities lie). I've reached an age where it is prudent to move (mostly) to blue chip dividend paying stocks (and WAG is such -- so I'm just peeved a bit about the portion I bought in 2006 which was, as you say, near a peak; and not the portion held since 1998 which has done well).

If you've not followed the BMW method, well, I have some issues with it - mainly that die-hard adherents seem to think it predicts the future. (OK, that's an overstatement, but every "system" is designed to do exactly that.) It does no such thing, of course, because there can always be a competitor who comes out of left field, or some earth-changing event that catches you by surprise. It never would have told you that the Encyclopedia Brittanica would be destroyed by Wikipedia, or that Kodak's 100 year old film business would be rendered kaput by "digital cameras."

That said, I do find it interesting. Back to the WAG chart for a moment; this isn't telling you that the WAG stock price hasn't gone up over the past few years, it's saying that the relationship between the stock price and the company profitability hasn't kept pace. Eventually, the theory goes, investors will realize that the company is a screaming buy and will pile in, driving up the price. You can see how that happened from about 1995 to about 2000, in fact, over-reacting and going too far. Now the correction sets in, which both you and I have been sitting on for the past 5 years.
http://invest.kleinnet.com/bmw1/stats20/WAG.html

Another example is WalMart, which went flat after Sam died in 1993 (IIRC), but the company continued growing, and investors belatedly realized it in 1996 and piled in, driving the price up extraordinarily. Then, as the economy prospered and WalMart was eclipsed by Target and other specialty retailers, investors (IOW: the big glamour investment houses) lost interest, and nothing much happened. But WalMart's profits kept growing, even as the press got worse and they got hammered for all sorts of other things. You can see WalMart is now below the line, and I suspect at some point in the next couple/few years, investors will wake up and go "Holy Schmoly! What was I thinking? Buy WMT!"
http://invest.kleinnet.com/bmw1/stats20/WMT.html

These trend lines have a reasonable predictive value for selling, too. Wouldn't you rather have sold WAG and WMT when they had reached a (temporary) peak, and then had the money elsewhere during the ensuing (correcting) years? I would.

So I think there's something to be said for it. But then there is no chart that would convince me to play with banks or publicly traded investment houses at the moment. There's just too much below the surface that's unknowable.
 
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