Throughout the current market turmoil every analyst has been asking: is this the bottom? Most respond that it is or close enough that investors should reenter the market. But that is the nature of equity brokers who pass themselves off as market gurus.
But with near 1,000 point daily swings a common occurrence in the Dow Jones Industrial Average and the Dow closing today below 8,000 for the first time since March 31, 2003, it may be a good time to take a little more scientific approach.
John Di Tomasso, a valued based commodity trading advisor (CTA) attempted to do just that in a letter he sent out to investors and friends of his program.
Di Tomasso took a simple well known model to calculate the intrinsic value of the Dow as of September. His findings? The intrinsic value of the Dow was 6,602.
The scary thing is that the market usually goes from one extreme to the other, it rarely just stops at fair value.
We are not making a recommendation and we certainly don’t want to attempt to make predictions other than to state what we think is an obvious fact, that we still don’t know the full extent of the current crisis. But we do like the idea of using basic well thought valuation models. We have heard too much talk of new paradigms over the last few years.
Tags: Di Tomasso, Dow, Intrinsic value
