Enterprising Investor Forum

Real recovery? Thursday, July 17, 2008

Today we would like to discuss recent market events and what the possible outlook could be. Look at this 5 day chart where we use ETFs to show overall sector performance. We have used the XLF for financials, OIL is self explanatory and VNQ for real estate.

Despite the fact that OIL is sharply down and that both financials and housing are recovering, this does not mean that it’s time to jump back in. We feel that this is a bear rally and that investors should be careful… don’t be fooled by a 15% jump… a 30% drop could be around the corner. There are still too many unresolved issues with Freddie and Fanny and until we have concrete news from Washington, there is still sharp downside potential.

No doubt that this rally will probably go on into next week but again, we feel investors should not rush to get back in. As usual, study companies you are interested in and decide at what price you would be comfortable opening or adding to a position. It is extremely important to remain focused on this initial analysis and not to get carried away by what Mr. Market does.

Some readers have written to us asking if they should take out the limit orders and just buy now before things move too high… but this is not how we like to invest. Forget about the crowd, stick with your play. As Emerson said “The great man is he who in the midst of the crowds keeps with perfect sweetness the independence of solitude.”