The Week ahead

Fear

My friend Steve Goodman likes to say two factors drive the stock market. Greed and Fear. At the height of the technology bubble, many people would pay any price for technology stocks. They had to be in. That was greed. Now the market is gripped by fear.

The market continues to lose value because investors are paralyzed by fear. The economy is getting better. But investors are afraid to buy stocks. The earnings outlook improves. But investors are afraid to buy stocks.

It is interesting to find out what they are afraid of. There is a excuse du jour type situation. Today it's the Middle East. The next day is the India Pakistan thing. The day after is the fear of another major terror attack.

The key word right now is fear. People, the very same people who would pay any price for a technology stock in 1999 are afraid to put money in the markets today. It's kind of a pitiful thing to watch.

Our position: There are bargains out there. This market might take another hit to the tune of 30% before it bottoms out and really starts to recover. Any hint that something is going to go wrong spooks investors.

There is something to think about. Every time individual investors panic and dump stocks at any price on the down side, someone is buying them. Take a look at the percentage of institutional investors holding your favorite company. Is it going up? Are they bargain hunting at the expense of the individual investor? The answer to this question is the same as the answer to the next. Did they dump technology and dot com stocks during the bubble on individual investors gripped by greed who were willing to pay any price?

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Shmuel Protter
investmenttool.com