It is no secret that I spend most of my time searching for stocks that are too cheap not to own or that offer a trading opportunity. I also review options trades on stocks that I believe are underpriced, and I can sell puts to create a better entry or just collect the premium. I review special situations to find combination trades and to set up a specific set of trades over the next year or so.
Most of the investors I admire, such as Walter Schloss, Chris Browne and John Templeton, have always said that they ignored the market and economic outlook and concentrated on individual securities and opportunities. Most of the time I do exactly that and focus on finding stocks and trades that fit my selection criteria.
However, information moves faster today, and the leverage of derivatives and other instruments can change market direction in ways that did not exist in years past. An awareness of general economic conditions and trends can help me avoid value traps, such as financials, some of the retailers and real-estate-oriented stocks.
Once in a while I need to come up for air and take a look at what is going on in the market and economy to give me a backdrop for my trading and investing activities.
It's Cold Outside
I have made no secret that I am generally bearish on the stock market. So far it has been the right thing to do. Looking at a chart of monthly prices (yes, I know, value guys are not allowed to use charts -- we are not supposed to use options either -- and I wonder if I will get kicked out of the club), prices have pretty much fallen in a straight line since the 1576 high in October.
Investing Three Stocks Buffett Could Love 5/13/2008 1:50 PM EDT These consumer-goods companies have the right stuff, according to my Buffett-based "guru strategy."
Investing Insiders Tip Off Three Private-Equity Plays 5/13/2008 1:03 PM EDT The industry has seen a lot of bad headlines this year, but that isn't stopping executives from investing in their companies.
Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.
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