A year ago when the credit crisis began to erupt in earnest we began to speculate internally about how far the Financials would fall. At the end of May 2007, Financials represented 21.3 per cent of the S&P 500 index. We thought it could drop to as low as 15 per cent. Last Monday during the collapse of Bear Stearns, Financials had fallen all the way to 16.2 per cent of the S&P 500. Close enough. This represents a decline of almost 38 per cent and over $1.1 trillion. These are massive losses.
Despite all the uncertainty and negative news it is not a stretch to believe the worst is behind the stock market. Oddly enough we think the place to look for bargains now is mostly outside of Financials. All stocks have gotten bruised in the bear market over the last year. Many businesses are doing quite well and have well-defined near- and long-term prospects. Concentrate on these companies and make sure they have strong balance sheets and ample overseas opportunities. The time to be defensive has past.
