The more important than the overall market valuation is if I find value stocks based on absolute not relative criteria. A few weeks ago i was buying into utilities, as they were trading at <10x earnings 6% dividend yield and in many cases close to book. they were good values then but now they moved up 20%+ and valuation is Ok but not great. A sector that right now is under some sort of stigma is health care (health care reform, reimbursement) but assuming the world does not come to an end, stocks like SKH, SUNH, BDX, ABT looks like very good values, relative to how they used to trade (historical PE's), and in absolute terms (PE<10etc ). True there are risks but in the end I believe there is a discounted value that compensates. In many other sectors (industrials to name one) I feel the valuation can only be justified by a very sharp economic rebound which is not something I want to rely on.
My cash percentage of my portfolio remains stubbornly high because stocks I have bought gradually reach my exit prices (most recently BRK.B, UL, RF) so i am letting them go. I would make better returns not doing so now but then again being consistent and using the volatility in the market to my advantage has allowed me to avoid the high portfolio drawdown that I would have had to endure as buy and hold investor, so i am not complaining at all. |
