Thursday, August 4, 2011

Dow Jones Drops 513 = a Golden Opportunity

As a finance person, it was impossible to ignore the precipitous drop today of the U.S. stock market. The Dow Jones Industry Average (DJIA) dropped 513 points, ending the day at 11,384 (-4.3%). It is the worst single-day drop since 2008. The other stock indexes did not fare any better: the S&P 500 dropped 60 (or 4.8%) and the Nasdaq dropped 137 (or 5.1%). I am really glad I am not a trader on Wall Street, or involved in any facet of stock trading. Can't imagine the chaos on the trade floor.

But I like to believe I am a value investor. This means that amidst the black and gloom, I see a golden opportunity to invest in the market. As Warren Buffett so famously said, "You only find out who is swimming naked when the tide goes out." What he did not mention is that real profits can be made when swimming against this tide. Last time I made an investment into my stock portfolio was the summer of 2009. Earlier today I just wired a fresh investment into my brokerage account -- just looking for the transfer to be recognized now...hopefully by mid-day tomorrow. Sure I've been hit by today's negative stock movements, but do did everyone else.

So what companies am I eyeing? The usual culprits I mentioned in the last post apply. In particular, I have my sights on Nokia and Pepco Holdings. Yet I am not able to buy into all these companies, at least not without a massive influx of capital (which I neither have nor would want to throw down). Therefore I will be a bit choosy and select only a few:
  • Nokia (~500 shares) -- I am a fan of the company and believe in its comeback in the near future. There is no way the company's stock is worth only $5 per share. Considering its strong patent portfolio, market presence, and new partnership with Microsoft, its price ceiling should be at least double.
  • Clearwire (~1000 shares) -- I had not considered this company before but, after seeing its stock drop more than 25% today, I am going to take a gamble on it. Operating expenses may be up, but the company's technology still possesses tremendous potential for both wireless customers and land-based. The target price should be around $5 a share.
  • Pepco (~150 shares) -- Pepco remains a blue-chip company and therefore a prized asset if I can acquire for a discount. Its revenues are stable and pays a tidy dividend every quarter.
  • Morgan Stanley (~? shares) -- I used to own stock in Wells Fargo, but pulled out when its stock languished for about a year. Of all the major banks that remain, Morgan Stanley is not my first choice. That honor would go to JP Morgan or Goldman Sachs, but I cannot afford either of their stock. Morgan Stanley at $20 per share looks to be a reasonable consolation prize.
  • Increase my holdings in AMD and Ford -- I strongly believe that you can't hedge your bets too much when capital is lacking. There's a reason why I have holdings in both companies right now, and I believe in their future. Market studies just shown that AMD has increased its market share against Intel (albeit marginally) and I get excited every time I see a Ford TransitConnect on the road.
Back in 2009 when I entered the stock market, my portfolio went up 50% in the first year (thanks mainly to AIG and Ford) and doubled by the second year. Hoping I can replicate the same feat through all this drop.

No comments:

Post a Comment