wheat vs. chaff

My guess, for what it’s worth, is that the flood of selling that greeted the new year has come to an end for now. I don’t know whether this signals the worst is over (my guess is that it isn’t), but I do think it means the market feels that overall prices have fallen too far, too fast.

I think an important thing to do now is to look through the parts of our portfolios that have suffered the brunt of the selling and separate the stocks that are bouncing as the overall market recovers from those that aren’t. Although there are no flat-out rules, I’ve always thought of the latter group as a significant cause for concern. Continuing weakness typically implies that there’s something specific to the company–apart from sector rotation or other general market happenings–and something that I haven’t yet realized that’s behind the lack of strength.

This doesn’t mean one should sell. After all, a big key to success is to know a few stocks better than the market does. But I think it does mean needing to double-check to make sure there isn’t any major negative I may have overlooked.

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