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A post from Monday morning, delayed per TMF trading restrictions:

Panic certainly was in the air this morning, when after experiencing a major selloff last week stocks opened the day in free fall, with the Dow Jones Industrial Average down 1,000 points at one point.  You knew that the market was acting irrationally when the stock of a massive company like General Electric $GE was down more than 20% on no company-specific news at for a brief period.

The worst thing that one can do in a market selloff like this morning is to panic and sell their stocks along with the rest of the lemmings. If you can't take the pain, you'd be better off sticking your head in the sand and reading a book, going for a walk, or playing a game than selling into an irrational market. I personally use opportunities like this to put money that I have sitting on the sidelines to work, or even to sell shares of things that I believe are cheap to raise cash to buy things that are even cheaper. Forget about the cost basis of the things that you sell. It's all about where stocks are headed, not where they've been.

Even though it can be disturbing to flip on the financial news or look at your portfolio and see such a massive selloff, one really needs to keep it in perspective.  The U.S. markets were waaaay overdue for some sort of selloff. According to Deutsche Bank, the stock market, experiences a correction every 357 days on average (source). Know when the last time there was one in the United States? Almost 1,000 days ago.  That's the third longest period on record without a correction. I personally believe that in a weird way, the fact that we may be experiencing one might even be the same way that some forest fires are actually good for the environment. China definitely has issues, but right now the U.S. is actually in pretty good shape economically.

So after all of this carnage are stocks cheap?  Surprisingly, not really.  At Friday's close, the S&P 500 traded at 16.1 times 2016 earnings, down significantly from the 18.9 times it was at in July but amazingly still above its ten-year average of 16.0 times (source). While stocks in general are not particularly cheap, certain sectors absolutely are.

While investors have been selling off REITs and MLPs en masse out of fear that the Federal Reserve is going to raise interest rates making these yield instruments less attractive, I have been pounding the table that they are cheap.  I see absolutely no evidence that long-term interest rates are in danger of rising any time soon, certainly not enough to justify selling off these sectors indiscriminately. Take a look at this chart of the yield on 10-Year Treasuries, which dipped below 2% this morning.  Does this look like a rising rate environment to you?

I Loaded Up on Double Digit Yielders this Morning...Special Situation Investing News - 8/24/2015


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