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Market View: Forget Valuation, Look At Fundamentals

July 12, 2008 12:44 AM

I have long mentioned that I believe in firm numbers. I have also mentioned that the market is not rational, on any level, and never has been, not will it ever be, contrary to what is taught in schools. It is driven by fear and greed, nothing more. That is why you see stocks trade at 3 or 4 times what they are likely worth, and others trade at a very small fraction. Fear and Greed.

To be long this market, or any market or stock, ask yourself a simple question. Are the fundamentals getting better or worse? If they are getting worse, FORGET valuation, it is 100% meaningless. If fundamentals are getting worse, earnings may implode, and your “cheap” stock may soon have a 150 PE or even negative. Never, ever, ever buy a stock on valuation. But them on fundamentals.

Until I see at least the “possibility” of the fundamentals getting better, I will keep my long term “very negative” outlook, as I have had month, after month. Reality may suck, but it cannot be ignored.

Written by Tom@StockBlade.com · Filed Under Current Market View 

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