You recently asked the question where one could put one’s money, and then correctly stated that “Everything is slowing down”, .... which indeed it is, generally on a Global scale. What makes matters even worse is the financial/credit crisis currently under way.
These and other factors have, IMO, introduced fear, panic and uncertainty in Markets as well as ensuring that the usual sensible fundamental criteria that one uses to analyze companies often plays a very minor role.
In such a climate I personally believe that preservation of Capital is of foremost concern.
Yes, Warren Buffett, someone who I very much admire both as a person and as an investor, has publicly stated that now’s the time to be buying, now’s the time to be greedy because many are fearful.
I would certainly agree that many good, fundamentally sound companies have had their share prices slashed by this selling frenzy and are priced well below what they would be in more stable circumstances.
Where I would differ with those who advocate buying now is in the “Timing”.
Personally I would want to wait until we started to see some degree of “normality”, “sensibility” and confidence returning to stock markets. And, in addition, until we also started to see some degree of upturn in economies. Because, IMO, that’s when we could see improvements in Revenues and Bottom Lines. That’s when we should be able to place a bit more reliability on those Fundamental criteria that investors tend to use.
I take your point where you state, “I think it is not a good idea to wait until things pick up because at that point the stocks we look at will be 50% higher.”
But “50% higher” from what base ?
If, for example, one had bought PCP about 4 months ago at $90, a company which we both regarded as having good fundamentals, we would have seen a decline in our Capital, on paper, of about 34%. Its price has declined to about $56, and it could very well decline further. If it went to, say, $46 before it began to rise again and we add 50% to that price we would get about $70 a share. So we could still be down $20, or 22%, from our original purchase price.
On the other hand, if we had waited for a confirmation of its uptrend of, say, 20% to 25% then we could have bought it at about $55 to $58 and we would then be showing a Capital Gain of about 20% when it got to $70.
I realize that I could be accused of “playing with numbers”, but I have a problem with (a) risking Capital, and (b) having my Capital lie there in a stock and doing nothing for a period of time until things improve. And who knows how long that will take ?
I know the bond and Money market, especially Treasuries, are not giving that much of a return at the moment but at least one is getting something and Capital is being preserved.
If we look back a year or two ago, prior to this current financial mess, one was getting good annual returns from quality companies. I got good capital gain from stocks such as HANS, AOB, EBIX, etc... I’m sure the same could once again be achieved even after stock markets are once again regarded as places to place one’s investment Capital.
IMO, as soon as there are signs of confidence, etc .., returning to the Markets one could certainly be almost as greedy as Buffett and make good, above average returns on one’s stock market investments ! |
