Geoff Gannon May 18, 2006

On Yesterday’s Selling

Yesterday, the Dow suffered its biggest point loss in some time. You’d think that amid all that pessimism, some bargains might appear. Unfortunately, there was a method to yesterday’s madness. Many of the stocks that had run up gains earlier in the year suffered the most. As I looked over the list of stocks I’d like to buy at slightly lower levels, very few were down in a big way and a fair number were up slightly.

There were some exceptions. Earlier this week, The New Wall Street mentioned three tech giants worth considering at these prices: Microsoft (MSFT)Intel (INTC), and Dell (DELL).

Bill of Absolutely No DooDahs felt these stocks have farther to fall. As you may remember from an earlier discussion, I recognize the logical validity of technical analysis, but don’t believe it has serious practical applications, because an investor can perform very well by simply focusing on the fundamentals (if he has the stomach for large paper losses).

I’m probably somewhat tech averse, because it’s difficult to get a clear view of the future competitive landscape in these businesses. I wouldn’t be buying Microsoft, Intel, or Dell myself.

However, you may remember I set up a few simulated funds at Marketocracy to test out various limiting factors in portfolio construction. One of the funds I created (the Goliath Fund) is limited to investing only in companies with a market cap of more than $10 billion. It’s worth noting that a full one-third of the Goliath Fund’s assets are now in the three aforementioned tech giants. Since I know next to nothing about tech, you might want to take the implied endorsements with a grain of salt.

Yesterday, Rick of Value Discipline mentioned two international stocks that got hit hard during the selling. One of the stocks he mentioned seems like a good choice to me. Aegon (AEG) is a cheap life insurance stock. You may want to check it out.

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