Wall Street's year is off to a rough start, with U.S. and foreign stocks plunging amid fears of subprime calamity and recession. All of which, naturally, makes me think about Cookie Monster.
Keeping the clouds away ...
One of my favorite Sesame Street sketches involves Prairie Dawn trying to teach Cookie Monster the concepts of "first" and "last." She lays out a series of cookies, and when he's eaten all but one of them, she announces that he has reached "the last cookie." And that's when the foam rubber hits the fan.
See, Cookie Monster thinks it's the very last cookie in the entire world, and he proceeds to freak out.
"No more cookies forever!" he wails, in existential horror. "FOREVER! FOREVER!"
Prairie Dawn calms him down by explaining that it's merely "the last cookie for right now." Reassured, Cookie Monster devours that last cookie, and then sets off to find all the others waiting for him elsewhere. There's a Foolish lesson here.
Investment gains are a "sometimes food"
Wall Street in general reminds me of Cookie Monster: It rarely sees any further than the next cookie on the plate. And when that cookie's down to just the crumbs, it wigs out. The cookies are gone! No more cookies forever! FOREVER!
Bank of America
Of course, the market has been expecting this bad news. B of A has dropped from $52 since October, and it reached as low as $33 on the day of that earnings release.
It's not alone. In the past month, Amazon.com
These drops were wrought by a combination of a jittery market, slower than expected growth, and recession fears. Clearly, we're all doomed, right? Right?
Not really, no
I'm not the smartest investor, and I won't deny that the market has delivered serious short-term pain recently. But even I can see that this latest slump won't plunge the entire economy into an eternity of barren, cookie-deprived ruin. In fact, this might be a good time to start looking into buying the same stocks Wall Street has beaten down.
Fool dividend guru James Early recently singled out Bank of America as a dividend stock to beat, citing its massive presence in U.S. retail banking, solid balance sheet, and huge 6% dividend yield. Sure enough, mere days after Wall Street assumed the worst for Bank of America, the market seems to have shifted toward James's point of view. Wall Street lifted B of A stock from its midmonth low to around $43. If you'd sold when things looked darkest, you would have missed that tasty gain.
The other stocks cited above haven't enjoyed such robust turnarounds yet, but their time will come. Amazon.com remains the leading online retailer, making savvy moves into digital content, and neither its market share nor the overall convenience of online shopping will vanish anytime soon.
Same goes for Google's strong track record of innovation, popular online ad network, and iron grip on the U.S. search market. As for Apple, the market apparently ignored its typically strong results in favor of balking at its lowered guidance -- the same guidance that Apple consistently seems to lowball, and regularly wallops with each successive earnings season.
There are always more cookies
When the market starts to flail its fuzzy arms and get hysterical, Fools should take a deep breath and stay calm. Has anything about your favorite investment changed, besides its stock price (and maybe its most recent earnings)? Does it still have a sturdy business model, responsible management, and a healthy moat to ward off competitors? If so, plunging stock prices can start to look less like a disaster and more like a delicious discount sale.
Tom and David Gardner are two of the smartest investors I know, earning market-whomping returns for their Motley Fool Stock Advisor portfolio with help from a few key strategies:
- Look past the numbers. Intangible factors are just as important as hard data. Tom and David seek companies with smart, ethical managers who've aligned themselves with shareholders' interests.
- Buy good companies when the market panics. Wait for hysteria-driven downturns to snap up solid stocks at bargain prices.
- Hang on to those stocks for the long haul. As long as the underlying reasons why you like a stock haven't changed, no amount of short-term market fluctuations should scare you into selling.
Want to join Tom and David in discovering those other cookies Wall Street's too panicked to notice? You can snack on their latest selections, and all their previous picks, when you gobble up a free 30-day trial subscription.
Fool online editor Nathan Alderman wishes he were one-tenth as funny as Frank Oz. He holds no position in any of the stocks mentioned above, although he does enjoy cookies. Amazon is a Stock Advisor pick and Bank of America is an Income Investor selection. The Fool's disclosure policy is brought to you by the letter A and the number 1.