Sunday, May 12, 2013

Markets are becoming safer!

Sometimes, you can get a good idea of overall market sentiment and how risky it is to invest, not by reading what analysts have to say, but by reading the comments on articles.  Here's a good example of an actual comment on an article I read a short while ago.  I actually don't remember the article; it was that unremarkable.  But this kind of comment really catches my eye:
Bonds are in trouble at such low yields as the Market becomes safer. It seems to be there will be much more exodus from Bonds for the foreseeable future.
I especially love the part about the market becoming safer.  If I start seeing a lot of this type of comment, I'll know it's time to sell.  Just to be clear, the market never gets safer, except when everyone thinks it's not safe at all.  And, what is that about bonds, anyway?  I'm not sure where this "exodus" is happening either.  I suppose it could be... I'm sure some people have sold out of bonds, but the Fed is busy buying.  I don't know why anyone would buy Treasuries now anyway.  There are a lot of better investments... of course, those do involve taking risk... oh wait.  The market is getting safer every day now!

This is why I use the method that I use for valuing stocks.  I actually don't care how much the company is actually worth.  I only care how the market is currently valuing a company, and how I think they'll be valuing that company in the future.  The intrinsic value of a company is probably useful to know, and I do attempt to figure that from time to time, but in the end, it's really all about how the market values the company, which rarely, if ever, actually matches the intrinsic value.

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