Wednesday, April 20, 2005


The market is doing fine. Our top performing stocks today include Corning (GLW), GOOG, YHOO, AMR, SCST and RNWK. Among the stocks taking it on the chin today are the consumer discretionary stocks. The cycle is playing out "by the book".

The "big trouble" ahead is in regard to expensing options. The public will not understand that the real before tax earnings are the same whether companies expense options or not. I invite my accountant friends to chime in here but I believe it is actually likely that after tax profits may be higher after options are expensed.

It is difficult to appreciate that a ball player should make 15 million a year and equally difficult to appreciate that the Yahoo Chairman deserved a $200 plus million bonus last year. I don't want to try to argue the point but I believe it is good that options are going to be expensed--the transition is there to give the market a little indigestion.

Remember that the time to buy is when there are lots of things to worry over. Of the all time great investors, Jesse Livermore was one of the ones who knew to buy against the grain. The irony is that he strictly practiced the concept of letting winners run and cutting losers short. Still he got into a lot of trouble with his friends and followers when he made money during times when they had lost. The most notable time of all was in 1929. Right at the start of the crash, he turned bearish, sold his stocks and sold stocks short. He made a lot of money off the crash but was despised by former friends.

It can be hard to go against the grain. Many recent stock market newsletters are very negative. I can't say that the worst of this market is over but I have been through these tough markets many times and it seems that this market is not likely to crash from here but that it could soar like an eagle. It may need time to mature but when it takes off it will be a beautiful sight. Understanding that reported earnings declines in June will be paper entries should help you hold on if the bronc tries to buck you off.