FAITH

     In 1987 the late George Michael recorded the album "Faith" as his first solo album after the break-up of his band WHAM the year before. In the title song, George sings that "Ya gotta have faith". Yesterday's market action reminded me how important the virtue of faith is in investing. You've got to have faith in your research, your investing themes, and your decisions. More often than not, a new addition to the portfolio will decline in value. A sure way to lose money is to panic and sell a stock just because of normal market fluctuations. Your confidence in your stock selections comes from a disciplined approach to finding value in unloved stocks. My past posts lay out a strategy for finding cheap stocks that should trade higher. Ratio analysis is a great tool to help make intelligent decisions. The price/earnings ratio is a good place to start your analysis. The PEG ratio will help quantify the P/E ratio. Most brokerage sites have good research tools to help compare stocks in similar sectors which helps identify bargains. As I mentioned earlier, the stock market turned in a strong performance yesterday. After a punishing December, some of my picks in the technology sector were losing value and the news made them look hopeless. Faith in my research kept me from selling when most analysts were bad mouthing the tech sector. Suddenly, other investors realized that a company like Micron Technology (MU) was selling too far below its intrinsic value. The fact is that some stocks can languish for months on the s**t list and then like magic, gap-up dramatically in one day. I will be using the rally in this market to continue to take some profits and reinvest them in safe investments like FDIC insured CD's. That is what a retired person my age should do. This is not to say that I have abandoned stocks. I still have a major portion of my assets in stocks but for reasons laid-out in my annual forecast, I remain cautious about the market in general. Even though I will be slanting my asset allocation toward fixed income, I still look for undervalued stocks in all market environments. When I find a company that I want to add to my portfolio, I will place a limit order for it at the price that I find attractive. Sometimes a stock's valuation will get ahead of itself and I have faith that it will return to saner levels. Thanks to George for reminding us to keep the faith, RIP.