Why the Fundamentals Shall Prevail

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A study from Bloomberg showed that the average American is pessimistic about today, but optimistic about the future. This is a bright sign in an economic universe so heavily influenced by confidence, including confidence that you can pay the bills, confidence you’ll keep your job, and the confidence that your wealth will always have some value.

The Emotional Tide Is Turning

Optimism is incredible important to any economic revival. The world, as we know it, will not cease for most investors, and there are still plenty of opportunities in great businesses that are still showing profits. Apple Computers posted a very positive earnings announcement, showing that consumers are still willing to pay a premium for products that have true value to them. The same should exist for investors; there are still great opportunities in the market, especially when virtually all stocks are running a “half-off” sale.

Getting Back To Basics

Recessions happen when investors stop thinking about the future and worry about the present. Throughout the greatest asset bubble in history, from the 1980s to 2002, investors were optimistic about the future and willing to pay a premium for what an asset could be many years from the date of purchase. Paying a premium wasn’t a concern; instead it was confirmation that the security may be worth several times more than what it was at the date of purchase. This gave investors reason to pay more for less and wait out for heavier returns. As many of those company’s flopped, one by one, however, investors were less willing to pay the premium and started thinking about the here and now: earnings.

Earnings Should Prevail

A company that makes money is a good investment. Companies must show that it can compete with its competition and demonstrate that the organization has what it takes, even in a recession, to market its products to the end buyer. When investors start thinking about the here and now, they need to think earnings and how the company will perform in a good economic climate, compared to how it’s performing after the tides have shifted. The resurgence in value investing is here; investors want value for the amount of money they’re willing to stake in an investment. And they deserve every bit of that value, as they’ve taken a risk and should be appropriately rewarded for its prosperity or failure.

Going Back To Growth

Growth is what makes stocks so infinitely better than debt investing. You’re buying a piece of a pie that will hopefully grow larger as the corporation does too. By growing its profit margins, or the number of people which buy its product, a company can grow its own standard of profitability without anyone else. That’s where the money is for most investors; it’s not in dividends but in capital appreciation!

Simplicity for Simplicity’s Sake

Complicated investments are surely paying the price. As investors watched the derivatives time bomb explode after the financial crisis, they were no longer willing to invest in such risky endeavors. To regain the trust of investors, the markets will have to be calmed, but it won’t help soothe the negative stigma attached to most complicated investments. Instead, investors will look elsewhere, ease up on the hedging strategies, and pick a one direction portfolio that works. The gimmicks haven’t worked for most investors, but long term, appropriately managed investments have fared very well.

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