Stock Market vs. Individual Stocks

Today was a riveting day for North American Stocks. Also, if you don’t have much of a stomach and have a bunch of money in the markets, you probably found it extremely discouraging. But days like today are made for investing in the long term.

In total, the combined market value of all stocks on the US based markets fell by hundreds of billions, if not trillions. The reasons are really threefold, and yet none of these reasons at the individual stock level should have moved the broader market the way it has.

Basically the market sold-off because of:

1) The continued debt pressures on Greece and the European Union in supporting it

2) The devastating spread of the BP oil spill in the Gulf of Mexico

3) Continued uncertainty about how the US Federal Government will regulate the banking sector

Of course in each of these stories, there is a definite market impact on certain companies, but for the same reason, many of the great companies who are seeing a real rebound in the economy, will continue to see healthy growth on their bottom and top lines.

One of the market darlings, Apple Inc. (AAPL) announce this morning that they have sold 1 million iPads in the last few weeks since their launch. The company BLEW their last easrnings estimate out of the water and are showing an unprecedented growth. Today’s action WIPED $800 Million of value off the company. Microsoft, which also also has shown fantastic growth, lost an amazing $8 Billion in market cap.

These are great companies which trade at different multiples based on their growth, but neither of which will be affected by the news of the day.

Another example, closer to home, is Precision Drilling. A $2 Billion company, has lost over $200 Million in market value since the BP oil spill. As North America’s busiest driller, and a company which recently reported great earnings, the example is even more pronounced. By rights, Precision and most other conventional oil drillers (non off-shore) have every reason to benefit from the BP catastrophe.

So when you are investing, always do your homework, and have a reason to be invested in every stock you own. Always understand how it is valued, which is ususally based on existing or future cash flows. When opportunities like today present themselves, jump on quality stocks which will rebound quickly.

On a sidenote, the companies like BP, who will see an impact on their future cash flows, are also worth a look. If you look at the loss in company value (Market Cap) of BP since the accident, it is down an amazing $30 Billion in value. There is no way in the world that BP will ever pay that in clean-up, fines and lost profits, and so will some day return to loftier value. That said, there is a saying in the stock market which is worth repeating. Beware trying to catch a falling knofe, and that is what BP is right now. I think BP will see dontinued downward pressure until the spill is cleaned-up and we know the impact on their profits, but rest assured it will return.

So be confident in what you have invested in, and buy when presented with such great opportunities.


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One comment

  • Will May 9, 2010   Reply →

    Yes… okay… but what about petunia futures? I hear they’re going to make the Dutch tulip boom of the 17th century look like an insignificat blip on the flower market. I’m invested deep. Hope there’s no flower disaster/scandal in coming weeks to spook clients to the greenhouse.

    I wonder how an ipad tastes.

    We’ll never have money, but eating our own food on our own land makes us rich in a way too little valued in these times.

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