"Street Critique"-Patrick O'Hare, Chief Market Analyst at Briefing.com
Wednesday, November 19, 2008JEFF YASTINE: With stocks at bargain levels, it's tempting to step in, but tonight's "Street Critique" guest warns you've got to do your homework. He's Patrick O'Hare, chief market analyst at briefing.com. Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Hi, Jeff, great to be back on the program.
YASTINE: First, give us your thoughts on the market especially with today's finale, the Dow below 8,000.
O'HARE: It's obviously not a good-looking market and it's really at a point where it's gut-check time. The leadership is just not there by any means across any sector. With the violation of that October low, it's likely to see a potential for some more meaningful selling pressure over the very near term here. So might not be pretty over the near term but again we're focused on long-term investing so, you know, so we're going to come to you tonight with some ideas as to how to stay grounded in that perspective.
YASTINE: You write briefing.com's bargain hunting column and you've prepared something of a six-pack of investor advice here for us. Give us the first one.
O'HARE: The first one is do something. Now this runs counter to the approach of doing nothing which hindsight has shown has certainly been a winning strategy the last three months. However Warren Buffett admonished his investors that cash is a terrible long-term asset that is certain to depreciate in value. So doing something now like buying a stock in a company that you've long admired but always thought was too expensive will at least provide you some psychological relief in the midst of counter- trend rallies that will occur here and will be material in nature.
YASTINE: Even though it's very hard for anybody to step in after the kind of headlines we're getting. Give us a second tip here.
O'HARE: Sure. We suggest wading in. Don't dive in. What we mean by that is that, you know, have to take an all-in approach when you do something in terms of buying a stock. If you just scale in to a position, what that does is it at least gets you some skin in the game so to speak, but it will reduce your anxiety in the event you see losses over the near term.
YASTINE: Now the third one on my notes here is buy what you understand. That sounds simple enough.
O'HARE: Right. There's cheaply priced stock across all sectors. This is a time to buy stock in companies whose businesses you understand versus of taking a flyer in the stock of companies you think might rally more in the event the market turns higher. But remember, you trade stocks and you invest in companies.
YASTINE: We're running out of a little bit of time here. But your next ones are seek compensation and apply your own discount. What do those mean?
O'HARE: Seek compensation is just looking for dividend payers. You'll get compensated to wait even if capital appreciation remains elusive over the near term. Applying your own discount, look for a stock whose consensus earnings estimate has been cut 10 percent and then reduce that by 20 percent. That will at least give you some confidence in the idea that you're buying the stock at a reasonable price if that reduction shows that the P/E multiple is still at a discount to the historical average of that stock.
YASTINE: We said there were six. What's the last one?
O'HARE: Right. The final one is you can diversify multiple stock holdings in a single holding by buying an exchange traded fund. If your financial resources or our risk tolerance is limited, the exchange traded fund gives you exposure to an asset class or a specific sector. And it also reduces the uncertainty of knowing whether you've actually picked the right stock within a specific sector.
YASTINE: Good tips as we go through these difficult times. Patrick, thanks for your time on the program.
O'HARE: Thank you, Jeff.
YASTINE: Our guest Patrick O'Hare, chief market analyst at briefing.com.
