Every so often, I get emails from readers who are looking towards the bottom of the weekly StatSheet to see if picking up some bargains in the beaten downs areas might make some sense. Based on my M-Index ranking, the bottom of the totem pole is currently occupied by ITB (home construction), XHB (home builders), IAT (regional banks) and UYG (financials).
With the financial sector being in the news on a daily basis, some investors are wondering if this would be the right time to do some bottom fishing. MarketWatch had an article titled “Stupid Investment of the Week,” which elaborates on that idea.
Personally, I do not like to try to catch a falling knife by guessing if this sector in fact has reached bottom. While I think that financials still have a ways to go to the downside, I can’t be sure at all. It’s a guessing game.
My preference is to buy sectors that are on the way up and have some track record of upward momentum. Sure, you could argue that financials now represent a good value, but that’s relative.
I liked Al Thomas’ (author of “If it doesn’t go up, don’t buy it”) quote best, when he said in his latest weekly update:
“Value like beauty is in the eye of the beholder. There are hundreds of ways of measuring value, but I only know of one. If it is going up it has value. If it is going down, the value is yet to be determined. Don’t buy it.”
Couldn’t have said it better myself.