“We can’t solve problems by using the same kind of thinking we used when we created them.”
Interest rates have dominated stock market discussions during the nine months ended May 2008. The U.S. Federal Reserve has taken a lead in presenting this instrument to the business world as a universal panacea. It has been left to the King of Saudi Arabia to assert that speculative trading, rather than supply-demand imbalance, drives us to misery at our gas stations.
Bertrand Russell is at least as unlikely a source for stock market inspiration as the inventor of a use for uranium. The great thinker has suggested:
“State a problem in a way that leads to a solution”.
How can we keep a stock portfolio afloat in the wake of the tsunami unleashed by the sub-prime imbroglio?
1. Pick stocks based on Quick and Current Ratios, rather than on market prices and past performances
2. Shun stocks that leverage equity excessively for debt.
3. Distrust executives who evade disclosures on risky derivatives.
It pays to follow a herd during a bull run. Business management excellence is your best hope of an escape hatch when a stock exchange starts to sink. Credit rating is a microcosm of any enterprise. Interest rate movements and business strategy execution are not necessarily related.
Routes suggested by stock market celebrities probably lead nowhere. Academics, regulators, and TV anchors spout ideas that have kept them in their present jobs, rather than as private equity fund owners.
Many believe it is harvest time for top stock picks. Are you taking advantage of the opportunities out there?
Let us hear your thoughts below: