Thursday, March 13, 2008

Don't Look At The Rear Mirrors!

Look ahead, look for the next big thing and not look at the rear view mirror! So says Dr. Marc Faber, in the following article, Spotting bargains in bombed-out markets

  • The celebrated contrarian Dr. Marc Faber suggests that it is always an error to go looking for bargains in sectors that have recently boomed. His argument is that yesterday's hot pick almost never bounces back far enough for a good investment, and that you should always look for the next big thing.

He explains..

  • No, what you really want to find are market anomalies created by the financial crisis in sectors that are on the way up.

    For instance, if Wall Street takes another tumble when a US recession is finally and officially declared then you could find an asset sell-off across the board that produces some excellent bargains.

    That is what the world's richest private individual Buffett means when he says that shares are not cheap enough yet. So this is a good time to draw up a hit list of stocks that you would like to own and wait for the right moment to buy, most likely when there is a serious slump on Wall Street.

    The good will get dragged down with the bad. And probably the best approach will not be to buy former boom stocks like real estate and the financial sector but to try to spot the next big investment opportunity.

    These frequently flow from what has gone before. The housing bubble followed the tech crash because interest rates were slashed to support the economy. In turn the tech bubble followed the loosening of liquidity to meet the Asian financial crisis of 1998.

    Therefore you might ask: which sectors will benefit from the massive liquidity injections now being administered by the central banks to deal with the financial crisis?

Make sense?

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