Well, I must admit that I’ve not been making adequate time for FDF lately as a combination of travel and settling in from a move are my best excuses.  A ton has happened since I was last writing about Real Estate comparisons and getting into detail regarding a few stocks.

Most recently, I had an article in the pipeline on Labrador Iron Ore (LIF.UN) because a major expansion of the Iron Ore Company of Canada (of which LIF owns 15.1%) was announced in September.  The USD exchange rate was also turning in their favour amounting to a great buying opportunity at $45 a share.  During the process of researching and analyzing future cash flows for LIF, iron ore prices promptly shrunk with the commodity slide.

Now trading at $19.32 as of Dec 9 they don’t seem like such a great deal in the short term as IOC has just announced major scalebacks in production which will hamper distributions.

With the new information, I have to do more investigation into the potential of ore prices to recover (some say by 2010 when China gets back on track) because there is a lot of guessing going on.

I do think there are some great long term buys out there and will be looking to sniff some out over the next quarter.

I am also interested in the direction of the real estate market, especially in Southwestern Ontario.  Data keeps suggesting that sales are down and we are moving into a buyer’s market.  I have been looking at some properties in Waterloo that are cheaper than ever and have excellent cap rates (near 8.5%).  Given the direction of interest rates as well, this could be a great time to go shopping.

The wonders of Small Claims Court have been taking up a chunk of time also.  After a terrible group of tenants, I have a substantial amount in damages that need to be recovered.  I find this process both intimidating and chock full of learning opportunities. I will be keeping you posted on the process to give some insight and so you can learn from my experience.

Andrew has also been a busy man over the last 4 months and is taking in the entertainment (aka volatility) of the markets like most of us.

So bottom line, we’re back and ready to go. Look for continued writing on our activities and the lessons that can be had!

Over the past 8-10 months every magazine and television channel has been discussing the fact that US Real Estate prices are tanking. This trend is well covered in the macro sense but up in the Great White North we get few specifics.

I wanted to do a little comparison between 2 areas that I have some experience with, New Haven, CT and Kitchener-Waterloo, ON. It will also highlight that all of Canada is not tied to US performance, contrary to opinions of many people I have met. On the plane or in the airport, when the topic of Canadian Real Estate comes up, people automatically seem to think that our entire market will collapse because of the US situation.

Teachable Moment: Don’t believe people’s opinions on topics like this. Instead, take time to look at published information and data from trusted sources. For Canadians, the CMHC, Royal Lepage, and individual city’s sites offer quality stuff.

In addition to getting good data, you also need to know which data is critical for understanding an area’s potential to support a strong real estate market. Taken from pg 39 of Don Campbell’s book Real Estate Investing in Canada, the 12 key fundamentals that affect real estate values are:

Passive Factors (out of your control):

1. Mortgage Interest Rates

2. Increase in Average Incomes

3. Increased In-migration and Demand

4. The Ripple Effect

5. Local, Regional, and Provincial (State) Political Climate

6. Transportation Expansion

7. Areas in Transition

Active Factors (in your control):

8. Creating Highest and Best Use

9. Buy Wholesale, Sell Retail

10. Quality Marketing

11. Renovations and Sweat Equity

12. Speculation

I was curious how New Haven was doing because I visited there a few summers ago and found some interesting areas. I could have picked many other US cities I like, Boston / Cambridge, Phoenix / Scottsdale, Portland (Maine), and pretty much all of North Carolina and Florida. After a little searching on New Haven, I found the following chart that summarized the real estate market fairly well.

In the chart you can see prices have dropped over 10% from Q3/07 to Q4/07. This doesn’t even cover Q1/08, which data should be coming in for any day now. This decrease is substantial and should get some attention. However, I can’t take my eyes off the massive drop in the number of units sold. In one quarter homes sales dropped from 370 to 75!!! This is an 80% drop!!

Wow, now I realize the real crunch for property owners. A city with a population of 124,000 only had 75 properties change hands in 4 months! The real estate agents must be scared. This would seem to be a great buyers market because there must be a huge inventory of homes, condos, and investment properties. I would be curious to see what has happened to rents during this collapse of home sales in New Haven.

But let’s look a little deeper into the New Haven market using some of the 12 fundamentals.

Mortgage Interest Rates:

They have been low when compared to historical values over the past 30 years. The interest-only mortgages and other unique products also assisted in reducing borrowing costs and therefore stimulating home buying.

Increase in Average Income:

Estimated median household income in 2005: $30,603 (it was $29,604 in 2000)

New Haven	$30,603
Connecticut:	$60,941

Estimated median house/condo value in 2005: $188,200 (it was $109,200 in 2000)

New Haven	$188,200
Connecticut:	$271,500

Besides being around half of the state average, New Haven’s median income has essentially remained stagnant from 2000-2005, while house prices were increasing 72%. Does this make sense to you?

Increased In-migration and Demand:

The population of New Haven increased by 0.3% from 2000-2006. The addition of 375 people is hardly enough to justify a 72% increase in property values.

I can keep going through these fundamentals, but I think you already know the answer. The last 4 passive factors become more central when looking to predict an area’s future behaviour and we can skip them for this analysis.

Conclusion: New Haven’s fundamentals didn’t justify the increase in home values and they were bound to go back to reality. I realize that this may seem obvious now after looking at the fundamentals, but I truly believe I wouldn’t have been able to justify a BUY and HOLD investment in this market. It would have just been speculating and I don’t have the capital or risk tolerance to be doing that.

So let’s move on to Kitchener-Waterloo, where there is a large pool of skilled labour, a diverse mix of manufacturers and innovative tech companies, and great universities.

Here’s a summary of their real estate market:

As you can see there are a few differences from the New Haven chart, not sure if you can detect the sarcasm here or not…

For KW from 2000-2005 prices rose approximately 41%. This is good stuff for sure, but not as good as New Haven’s 72%.

As you can see the increase in number of MLS sales has also increased steadily.

Let’s look at the fundamentals now:

Mortgage Interest Rates:

Canadian rates are in a similar position to the US, low compared to historic levels. The difference in Canada is that interest only mortgages and subprime borrowing is around 5% of the market compared to 20% in the US. I got this info from the Real Estate Investment Network’s site, where they have a great speech by CIBC economist Benjamin Tal.

The climate is good enough to stimulate buyers, but not at a pace like the US.

Increase in Average Income:

Along with the median family income in KW being above the provincial and national average, unlike New Haven, it also rose about 10% from 2000-2004. This is a solid indicator of a region’s health, assuming inflation is also low.

Increased In-migration and Demand:

Just looking at the population increase for KW from 2001-2006 gives a good indicator of what is happening. A total of 25,201 people were added to the KW population for growth of 8.1%, almost 70 times the growth of New Haven over a similar period!

Conclusion: This case is also open and shut. Solid population and wage increases along with low interest rates bode well for KW.

If you had to pick the sustainable market, would it be New Haven or KW? You guessed it, even though KW’s house price increase was only 57% of New Haven’s performance, their underlying factors lean vastly in favour of KW for the long term.

So there you are, a specific analysis of the fundamentals for two real estate markets allowed us to understand their behaviour. Go ahead and apply these fundamentals to other US cities. If the cities have great fundamentals and prices are still dropping it may be a great time to buy. Just be sure to do your homework!

In a recent post I commented on the Visa (V) IPO and how I thought you should play it. The post was also published on Seeking Alpha, which is a financial site that publishes stock related posts from various blog sites and individual contributors. On the Seeking Alpha post a number of readers have left comments giving their two cents on Visa as a stock purchase. As you can expect the overwhelming majority of these comments are bullish. Considering that Visa was one of the most sought after IPOs in US history, this isn’t surprising. What was surprising was the over-the-top blind faith by some readers that Visa stock would do nothing but rise in value. Take a look at some of these comments…

“If you have a 3 year or longer horizon, this is a great entry point! It will trade at $200 in 3 years or less. If you are a trader, you will see choppy waters short term; after all, all the banks in deep capital need will sell to raise capital.”

Alright, so I agree with this reader, you probably will see choppy trading in the short term and with a 3+ year horizon this may be a very good entry point. But considering the hype around the IPO why not wait for this one to come in a bit before building your position? And the $200 price target is completely baseless. This next one is even better…

“i am 18 and bought about 1200 dollars worth at 59.5 and i think by the end of the year this stock will have a fair value of $80. with VERY little risk and a lot of upside earnings growth and the possibility that down the road visa europe will join the company there is too much upside to be had not to get in now.”

I’m not sure where this reader comes up with the $80 valuation or the upside earnings growth considering at this point we have very minimal visibility into the financials or growth projections at the company. And saying that there is VERY little risk in a market as uncertain as this one is dangerous thinking to say the least. Here’s my favorite…

“This is definitely a great stock to invest in… It might go up and down for a few days, but in the matter of a few months, maybe a few years, it will definitely be well over $200.00″

Again the $200 price target, and possibly in a matter of a few months none the less. Maybe the reason that these readers are throwing around the 200 handle is because MasterCard (MA) is currently trading around $220. Just because these two companies have the same business model does not mean that Visa is going to follow what MA did post-IPO. There are a lot of other factors that investors must consider and I don’t think the casual, first-timers realize this. When investors make investment decisions based on sentiment and blind statements like these, essentially what they are doing is gambling. Investments must be made on sound homework into the fundamentals of a company; anything else is downright dangerous. I’m not knocking Visa here, these readers may very well be right. But if you are going to pitch a bullish outlook in a stock you better be able to back it up with logical arguments. Do your homework before you put any money down and make sure you understand the whole story. Because the risk that comes with making decisions based on a lack of information can turn the VERY little risk that our reader talks about into a poor investment in a hurry.

Well its been a tough start to 2008 for investors to say the least. The markets put in their worst January in 17 years and volatility has been king. We had a sharp rally in the major indices over the past few weeks only to have them snap back 4% in two days at the beginning of last week. As tough as it may be, I still believe that this market is loaded with great opportunities for the long term investor. So in that light I’ve put together some rules for investing that might help you stay in the game and stay profitable in the current market environment. Here they are in no particular order.

1. Buy quality dividend paying companies with strong fundamentals.

Strong fundies are always important for successful investing, but even more so in a hostile market environment. Speculative companies with small market capitalization can be dangerous investments in the best of situations, but in times of economic slowdowns these plays carry an even greater amount of risk. Its hard enough for these companies to thrive in the best of times let alone in a recession. So in times like these stick with the quality, blue-chip companies that aren’t going to board up their doors when things get bad. The Microsofts and Exxon Mobils and Coca-Colas of the world will still be around when things turn around. These are companies that were strong going into the slowdown and will continue to be strong when we come out of it. In addition look for companies that pay solid and consistent (this is important) dividends. You can check back over the past 3-4 years to make sure that the dividend was paid to shareholders and wasn’t skipped out on (Google Finance is a great tool for this). These quarterly payments will help offset any losses that come with a down market. Be skeptical, however, of companies that pay a dividend higher than 10%. It may be very tough for the company to keep the yield this high if the economy goes south.

2. Volatility is your friend use it to your advantage.

Volatility can create some great entry points into certain stocks, but it can also make for some terrible ones. When you have crazy swings up and down like we had the past three weeks it is very important not to chase stocks as they soar higher. Its usually when the skies look like there starting to clear that the storm rolls in and the market tanks 4% like it did last week. Use the dips to accumulate stock in your favorite companies and, as a long term investor, hold on through the rips. If you are relatively nimble you can even take some profits when you get a big move in a stock. Most likely you will be able to get back in at a lower price point in the near future. Your entry point matters even more in this market. Take ConocoPhillips for example. The stock was at $68 per share less than three weeks ago. It then popped 10% to $80 per share in only eight days, dropped to below $74 the next three days, and ripped back up to nearly $77 where its currently trading only three days later. $68 would have been a great entry point, but if you had missed it and chased the stock towards $80 you would have been on the hook for the 7.5% drop. If you were patient however you would have gotten another sweet entry point at $74. Now this all sounds like common sense (buy low, sell high) but it is easier said than done. It is very tough to put your money into motion when it looks like the sky is falling. But its at precisely those times that you need to hold your nose and jump into the deep end. You need a way to identify the good stocks from the stinkers when everything is on the way down. Which leads me into Rule #3…amazing how that works out.

3. Make a list and check it twice.

Make a list of your favorite companies…the ones we talked about in Rule #1. These will probably be companies that were firing on all cylinders before things started to tank. Companies that you would have loved to own stock in but didn’t want to chase as they soared higher (see Apple, Google, McDonalds, and Freeport-McMoRan as Exhibit A). Companies that are now probably 20-30% off their highs from just a few months ago. Companies that you believe will remain strong into and after the downturn. Use the list to identify the stocks that you want to buy when our good friend volatility gives us the chance. Use the dips to build your position in the companies so long as the reason you put them on the list hasn’t changed. If you want to accumulate 100 shares of a company use each successive dip to add 25 shares to your position. This reduces your risk in the case that something takes a turn for the worse. After each dip you can evaluate whether the overall story has changed or not, keeping your investment time-frame in mind. If the story hasn’t changed you probably have a buying opportunity, if it has then you may have rethink the situation.

4. Invest in Companies with International Exposure

The companies that will continue to thrive as the US slows will be the ones with good international exposure. Especially ones that are tied to rapidly developing countries such as Brazil, Russia, India, and China. Some people think that as the US goes so to does the rest of the world. Personally, I believe that the development in these countries is far less coupled to the US economy than some people might think. The industrial development, construction projects, and energy demands in these countries are not going to grind to a halt just because the US isn’t importing as many lead contaminated children’s toys. Obviously it is a lot more complex than this but the story remains the same. As these countries ramp up construction on buildings, highways, and refineries, the companies with exposure to these areas will benefit. They will need the mineral and mining companies to provide the raw materials of construction, shipping companies to deliver the materials across oceans, and construction companies to work on the projects. Its not all about development either. Companies like McDonalds, Coca-Cola, Nike, and General Motors have great exposure in terms of international sales. Aerospace and Defense companies like Boeing, Honeywell, Lockheed Martin, and Raytheon have contracts in a number of the developing nations. So when looking for prospective investments, look for companies with international exposure.

I hope these rules help you stay informed and involved in these tough times for investors. Stay involved because the opportunities are there, you may just have to look a little harder.

Disclosure: Long McDonalds, Long Apple, Long ConocoPhillips

Watching CNBC’s Fast Money last week one of the analysts discussed an interesting trade for January based on the theory of Options Backwardation. Backwardation occurs when the implied volatility of an option, which is used in the calculation of the option’s premium, is higher in the near term than in the long term. Meaning that you are paying a higher premium for an option contract in the front month than in the future months. Normally the premium for an option increases as you go out further in time. Options Backwardation can be due to an expected catalyst in the stock such as upcoming earnings, or a new product anouncement. However, absent of these known events the unusual premium price can be an indicator of a sharp rally in the stock price in the near term.

The stock that was mentioned in conjunction with this trade was Echelon Corporation (ELON). Echelon develops, markets and sells system and network infrastructure products to home, building, transportation, and automotive manufactures. Options Backwardation was identified in ELON on December 31st, 2007. The elevated January premium of the options chain, relative to February and March, indicates a possible rally in the stock before the 3rd friday of January (the options expiration date). I don’t know how reliable this strategy is, but I intend on keeping an eye on ELON for education purposes. I’ll keep you posted.

Here is the link to the CNBC video where the Fast Money traders discuss this phenomenon.

As I was flying out to Nova Scotia last week I picked up a copy of Condé Nast: Portfolio from the infamous Air Canada Maple Leaf Lounges (best part of traveling by far). An article entitled “The Evolution of an Investor” was the feature. The skinny is a successful Wall Street type retained his conscience a little longer than most in the industry and he details The Big Investment Firm’s emphasis on client’s fees, not the returns their advice delivers. The article is worth a full read because of the high level of detail and analysis of efficient market theory as it pertained to his investment career.

After the meaty details of the investor’s life, focus shifts toward his decision to join Dimensional Fund Advisors (DFA). DFA is touted in the article as the only available alternative to the current Wall Street money grabbers that under perform the market year over year.

The article is seeded with “Just give up on trying to beat the market and hand your money over”, which sounds like most people selling index funds. Well, I was right. DFA denounces all investors that consistently beat the market. “If millions of monkeys throw a bunch of darts at the Wall Street Journal, at least one monkey would pick a winning group of stocks.” This is where my interest level rose higher than Amy Winehouse on Vancouver’s East Side.

“Investors who try and pick stocks or time markets are fools” is followed up by “You can tell a story every day about stocks”, “that’s what the media are all about. They tell a story every day about today’s stock returns. It’s businessman’s pornography” Boo-ya CNBC!

A Random Walk Down Wall Street is touted as a necessary read for outlining the efficient market hypothesis. How does this affect us? If we follow word for word, we clearly must give up entirely and close our (Prp) Trade King accounts. We should then hand our money over to DFA or buy any ETF. Then go on with your life and count the money when you’re 65!

Alright, we have quite the battle brewing between the upstart efficient market promoters (DFA and academia) and the conventional “the market is inefficient, there is value everywhere, so read every business magazine and trade 100 times a quarter” Wall Street / Bay Street crowd.

How do we handle this? Well I think we should educate ourselves about both sides of the issue to start.

So efficient market theory, what does it mean for an amateur investor? Well, let us look to the great Investopedia for an answer. After typing in “Efficient Market Theory” responses like Thin Market and Vertical Market are provided, no Efficient Market Theory anywhere. I guess we know where Investopedia stands on this issue. Looking elsewhere, there are 3 forms of the hypothesis:

1) Weak form: All past price behaviour and data is already reflected in the present price of a stock. Therefore using technical analysis to identify patterns and predict future activity is not possible.
2) Semi-strong form: All information available to the public is reflected in the current stock price. Therefore, it is not possible to have a stock that is under or over valued by the market.
3) Strong form: All information, public and insider, is reflected in the stock price. Therefore, it is not possible to use insider information to an individual’s advantage in the market.

A key point regarding the validity of these hypotheses lies in the necessity of the market’s participants to assume the market is inefficient. Participants must trade with the intention of beating the market, or else we would all be passive investors.

Passive investors do not analyze securities and therefore would not buy or sell based on new information. Therefore, stocks would not immediately reflect all available information as indicated in the Strong form if we were all passive. There would be a delay in any price changes until we got off the couch, read our email, and bought or sold accordingly.

Inefficient market theorists are pretty much everywhere. Any business channel or magazine will always be analyzing the “newest, best” value stocks and recommending them. Jim Kramer and Mad Money are the examples that come to mind first. His recommendations from December 21, 2007 are as follows:

Buy:
Apple Computer Inc (AAPL)
Agrium Inc (AGU)
Bunge Ltd (BG)
Deere and Co (DE)
Freeport-McMoRan Copper & Gold Inc. (FCX)
First Solar Inc (FSLR)
Gamestop Corp (GME)
Intercontinental Exchange (ICE)
Johnson Controls Inc (JCI)
Jacobs Engineering Group Inc (JEC)
Lundin Mining Corp (LMC)
Landec Corp (LNDC)
LSB Industries Inc (LXU)
Monsanto Co (MON)
Occidental Petroleum Corp (OXY)
MEMC Electronic Materials Inc (WFR)
Horsehead Holding Corp (ZINC)
Sell:
ingli Green Energy Holding Co (YGE)

So where are we now? Are you confused or have you been intrigued enough to read more deeply into efficient market theory? We could use the best of both approaches and begin rating markets according to their efficiency on a scale from 0 (totally passive) to 100 (totally efficient). This would actually be very useful and serve to improve efficiency in some markets. For example, in Country A, their highly efficient financial system is rated a 95. In country B, however, they have a rating of 85. Someone looking to be an active investor (Mr. Active) would then move toward Country B because his analysis work could potentially generate greater returns. More reward potential would exist because there would be fewer investors acting immediately on new information. By the time Mr. Half Active gets into the game based on the “new” information, our wise Mr. Active is already in.

If a large number of Mr. Actives moved to Country B to exploit this variance in efficiency, there would be less Mr. Actives in Country A.
This would in turn increase the rating of Country B and decrease the rating of Country A and in turn act to moderate efficiencies across various countries.

This would encourage acceptance of Efficient Market Theory as a useful tool for evaluating a market.

Overall, if you consider that efficient markets rely on its participants behaving as if it is inefficient, it does recognize that the current market is unlikely to change significantly in light of the theory. Large investment firms aren’t going to fold up because their managers can’t beat the market, they’re not even concerned with customer’s returns in the first place. It is in their best interest to increase the public’s level of interest in the market so they will participate and generate more fees.

I think there is room for improvement in the industry. Increasing transparency in business magazines would be helpful. How about a magazine stepping up and requiring all contributors to post their own annual rates of return for the last 10 years. Then we’d really see the results of the “Wall Street Journal Dart Championships”.

What does this really change?  I’m not quite sure, but in the interest of continually increasing my financial education, A Random Walk Down Wall Street will be in my hands soon.

Here are some common amateur investing mistakes in the form of a top five list. Some of these I have first hand experience making, others are taken from educational sources. In reverse order so I can build up some drama for #1, they are:

#5 Lack of mentors / Co-pilots
Early on I went out and bought all the books I could about investing. After thorough reading and learning steadily, I wanted to share and discuss what I had learned. Andrew was also keen and just getting into investing like me. It is great, because after I read about a topic, say options, we would discuss it and look at various ways to use the knowledge gained.

I couldn’t imagine not having someone to discuss investing topics with. It would be very difficult to maintain a steady pace of learning and a high interest level if reading out loud was the closest thing you had to an investing discussion.

A mentor is also critical. Discussing your activities with someone you respect that has been investing successfully for a long time will provide insight and speed up your learning process. Andrew and I walked into the office of an investment firm this summer and asked to talk to someone about getting into IPOs or private funding for some local companies. We were put in touch with an advisor who sat down with us for 30 minutes discussing our activities to date and giving us some perspective. To date I am still in touch with him on a regular basis to discuss stocks like ATS (TSX:ATA), Sandvine (TSX:SVC), and Plutonic Power Corporation (TSX:PCC). If I am confused about the behaviour of a stock in my portfolio, I give him a call and spend time discussing it to learn what I am missing.

#4 Becoming a One Source Investor
In the business section of the Globe and Mail, each week they feature an amateur investor and detail his or her portfolio. They often started investing after reading a certain book, say The Intelligent Investor by Benjamin Graham. The individual then followed the book and bases all investing decisions on the recommended method. There was no mention of their intentions for continuous learning.

I think this strategy totally misses the point. Constantly increasing your financial education should be the focus.

It makes sense to me that you would follow a system, but you had better be well versed in other perspectives. I personally need to do some reading on efficient market theory. I’m currently working on a post related to it and have found it both refreshing and interesting.

In a subject area as complicated as investing, it is too risky to act based on limited sources of information.

#3 Too Little Homework

If Kramer says to do 1 hour of homework per month for every stock you own, that is probably good advice. It would be an amateur move to buy and then check the stock price every day but nothing else. Monitor the performance of a firm’s customers, competitors, and any news releases made because it will help explain any movements in the price of your firm’s stock.

Monitoring price consistently is also key if you plan on investing more into the firm when a buying opportunity arises.

#2 “I have a good feeling about this one”
C’mon, we’ve all done it. Except most of us did it at the casino! The overquoted cliché about removing emotion from your investment decisions applies once again. Investopedia has a space where you can enter in your reasons for buying. This is something that you can do on your own in Word or Excel. If you can provide objective reasons for your purchase based on data, not advice, then you’ve probably done the best you can.

#1 Being Fully Invested
This means all of the money you devote to investing is currently active. That way when a great opportunity arises, you are not able to capitalize, or you have to sell a current investment to get into another one.

You could avoid all of the above mistakes, but if you’re fully invested it doesn’t much matter. I pulled this genius move off so on Aug 16, 2007 when Apple was at $117, down from $140, with the Canadian dollar at $1.0754 USD, I didn’t have anything to pull the trigger with. Obviously, hindsight is 20/20 and all that, but I was ready to go on it, you have to believe me!!

Anyways, I read an article where the author stated that he keeps 10% of his account in cash to allow him to capitalize on great buying opportunities. I like this idea and am working towards that over the next few months.

I need you help to compile a top 10 list of amateur investing mistakes. Send them over!

The US Federal Reserve voted today to cut its funds rate by 1/4 percentage point to 4.25%. The cut, the third this year, disappointed Wall Street which sent the markets tumbling. The Dow fell nearly 300 points or 2.14% to 13,433, the NASDAQ fell 2.45% and the S&P 500 2.53%. The Fed also cut its discount rate, the rate it uses when lending to banks, by a matching 1/4 percentage point to 4.75%. Wall Street was looking for a more aggressive approach to help the economy overcome the credit and mortgage crisis. Investors were expecting a cut, the only question was the size. Many were expecting a 1/2 point cut, especially at the discount window.

The language in the release from the central bank was very passive. They acknowledged that they are concerned about inflation saying that, “…economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.” They also expressed concern that some inflation risks remain stating that, ”Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.” However, the decision by the Fed lacked the decisive action that many were looking for. The disappointment on Wall Street coupled with the rally in the markets leading up to the Fed meeting today intensified the sell-off. The financial sector got hammered after the rally it saw last week, and tech followed suit shortly there after.

So how do we play this. For the long term investor I think this is a great opportunity to buy quality stocks on the dip. Make a list of stocks that you’ve been wanting to get into and use this sell-off as on opportunity to do just that. Take your time and add to positions slowly. Choose stocks that have been working and should continue to work when the sell-off ends. Companies like Apple, AT&T, McDonald’s, and Cisco are no different tomorrow or next day than they were during the runs that they’ve undergone in the past year. Although the downtrend may continue for the short term, in the long run that stocks that have been working will continue to work. The market is over emotional. It will overreact up or down to particular events. If you can leave your emotions on the sideline you can identify these dips as opportunities and get great stocks at a discounted price.