Tuesday, August 9, 2011

Time To Be Greedy

If you're a value investor, you've been waiting for prices like these.

For several months, you watched the market hit new highs. But you avoided ploughing in, realizing that buying on the way up is a recipe for disaster. You saw the market's PE 10 climb well into the 20's while IPOs and certain public and private tech names traded hands at egregious multiples.

You waited patiently through all of this, sitting idle on your pile of cash while the traders around you counted their returns. But now the tables have turned. The traders are willing to turn in their stocks (viewed as nothing but pieces of paper) in return for liquidity.

You, on the other hand, don't need the liquidity; you recognize that what you invest in the market should only be money you won't need for several years. Times like these are the times when you get paid. You get paid for having liquidity, and you get paid for having a long-term outlook.

So don't be fearful when everyone else is. This is when you get to buy stocks (viewed as pieces of businesses) for far less than they are worth. Take advantage of this opportunity by buying on the way down. Whether you have the courage to pull the trigger now will likely be a factor in how strong your returns will be over the next several years.

Disclosure: Longer many stocks


jarm said...

Sure, buying very good companies at these level can yield market beating results.

If you haven't seen, take a look at David Rosenberg latest morning letter: http://www.gluskinsheff.com/pdf/Breakfast_with_Dave_2011_08_08_u.pdf

Especially interesting is the fund flow measure. It will be ugly once large funds will start liquidating and raising cash. For the market to go up, you need buying power. According to Rosenberg, there is very little of it currently.

Anonymous said...

What percent did you have in cash at market peak?

jarm said...

Over 50% in cash. I have actually sold some more and now over 80% in cash. Would have sold them earlier, but some of the companies in my portfolio are reporting this week and I was waiting for the reports.

I may be wrong (and I'll have lost money then), but I think there are more bad news on the way. Maybe we'll have a 10% rally here. Maybe not. I don't know.
I bought shares last year when the market sunk, but the right now I think protecting capital is better option. Win 10% and lose maybe 30% (or more), is not an attractive bet.

Anonymous said...

Saj-- what's your cash/equity/bond position? now, in wake of the Fed decision? Time to buy or wait?

Saj Karsan said...

Hi Anon2,

I don't publish those details, but as for your second question I've been clear that I like to buy on the way down.