Friday, March 17, 2006

Caution - Rising Markets! Really?

I recently read a Bloomberg article by Chet Currier, advising caution in the emerging markets. Mr. Currier primarily points to several good years of outsized gains in the emerging markets investing field and then points to parallels of the NASDAQ "tech wreck" of 2000-2002. While Mr. Currier does say that he believes in the future of the emerging markets - and won't change his own personal investments there - he does tend to paint to a negative picture with sub-titles like "Look Out Below".

It's when reading columns like this that readers need to remain on alert regarding their own emotions. If I was reading this article and had investments like this, I'd make sure that I asked myself, what actual analysis does the writer bring to the table, other than vague parallels? Does he offer any particular valuation metrics which show that my particular investment seems over-priced?

If the answer is no, and you've already done your own homework in this regard, and are comfortable with the valuations, then you probably shouldn't give the article too much heed. Simply pointing out that the market has risen a lot recently doesn't mean that it's primed to fall, particularly if it has been under-priced in the past. If, on the other hand, the analysis points to some worrying new factors, or valuation metrics that you hadn't considered, then YOU DO need to think about and consider the issue.

My point here is to think about what the article actually brings to the table in terms of new information and then to carefully consider what effect that has on your thinking about your investment in that area. The fact that an investment has gone up a lot isn't exactly a cause to worry. You might, for instance, want to contrast the aforementioned Bloomberg article, to the hard facts provided here.

To use an example from my own portfolio, I had two stocks that doubled in value - one in less than six months, and one that took just over a year. If someone had written about them at that time, effectively saying "they're priced a lot more than they used to be, look out below", I wouldn't have worried, having done the proper fundamental analysis to begin with, and knowing that they were still under-priced, relative to competitors and the broader market.

And that's all I'm suggesting that you do.


The Confused Capitalist

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