Tags: Sanford | S&P | PE | stocks

Stock Market Investors Should Stop Acting Like Fred Sanford

By    |   Wednesday, 14 Jan 2015 07:59 AM

In the 1970s, Redd Foxx played junk dealer Fred G. Sanford in the sitcom Sanford and Son. At the slightest provocation, Fred would grip his chest and yell, "This is the big one!" as he feigned a heart attack. Viewers will recall this happened whenever Fred didn't get his way.

Over the past few years, stock market investors have become a lot like Fred Sanford, proclaiming "this is the big one" every time prices dip a few percent below their all-time highs.

Despite the supposed weakness of his heart, there was a lot of life left in Fred Sanford, just as there is most likely a lot of life left in this bull market.

Analysts at Standard & Poor's expect earnings for the stocks in the S&P 500 index to reach $131.01 in 2015. Price-earnings (P/E) ratios often reach 19 or more before markets tops. To reach that level, the S&P 500 would need to gain more than 20 percent.

On the downside, a P/E ratio of 15 is often a sign of a bottom. If the index fell to 1,965, we would be at an expected support level for the market. That price is about 3 percent below the recent price of the S&P 500.

The potential reward of more than 20 percent is more than six times greater than is the downside risk based on the fundamentals. Markets can overshoot fundamental targets, but until a downtrend is confirmed, the fundamentals are bullish for stocks.

Every dip in the stock market causes investors to wonder if this is the big one. Rather than imitating Fred Sanford and clutching their chests, investors need to consider buying the dips while stocks remain undervalued.

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MichaelCarr
In the 1970s, Redd Foxx played junk dealer Fred G. Sanford in the sitcom Sanford and Son. At the slightest provocation, Fred would grip his chest and yell, "This is the big one!" as he feigned a heart attack. Viewers will recall this happened whenever Fred didn't get his way.
Sanford, S&P, PE, stocks
282
2015-59-14
Wednesday, 14 Jan 2015 07:59 AM
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