Bullishness is as high as its been since early 2000, and I think we should remain cautious. In last month’s newsletter I had Baidu.com (BIDU) in my Magnificent Eight, with a fair value price of $231.
BIDU went down to $231 on May 13th, and on the 14th was headed higher again — on its way to $300! BIDU was $175 just two months earlier, which means it jumped 71% during that span. BIDU now sells for 52 times earnings — really expensive for a company expected to grow 30% a year during the next five years.
I think investors have gotten giddy and swallowed a lot of risk lately. Stocks aren’t on sale anymore. In fact, a 10% correction could turn into a swift fall and wipe 40% off top stocks like BIDU. We are almost fully invested, but I am braced for a correction. We beat the market by 10% in the first quarter and have since given up little of that lead. We own solid stocks that may not have the flash of BIDU, but possess much better values — and upside — without taking on a ton of risk.
