To Buy or Not to Buy.

To Buy or Not to Buy.

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The news has it that most stock indices around the world had just passed its previous peak 10 years ago – just before the GFC crashed the parties.

The stats I’ve ran across paints a pretty alarming picture of the state of the world economy and where it’s heading.

There’s stagnant real wages; massive, never before seen, private debt levels in just about every country you cared to look; There’s record low interest rate that’s basically giving (other people’s) money away for less than free, pushing most people to spend and “invest” in property, buying houses at 8, 10, 12, 16 times the average annual salary – you know, at “irrational exuberance” level.

Then there’s wars all over the Middle East, Africa, Eastern Europe; Western Europe just need a spark and long suffering patriots might rise up to “reclaim” their country again.

There’s North Korea playing its proxy role and giving excuses for the greater militarisation of East Asia (and South East, and South)… possibly leading to military confrontation between the US and second alliance of the willing against a rising China.

Then there’s Climate Change and its racking up of new record hurricanes by both the numbers, the intensity, destruction and political not-giving-a-fark. There’s record bushfires in North America (in Autumn?); cyclones hitting Ireland and Scotland?

But then there’s also the fact that some 8 guys own as much wealth as the bottom half of the world’s population; American billionaires are getting that much needed tax break; corporations needing incentives like tax forgiveness if they “bring back” cash they currently held in their country under their foreign subsidies. That should boost jobs, create jobs and investment… or more share buybacks and bigger executive bonuses.

So in all the bleakness, there’s some bright spots. But it’s pretty bad and look like history is about to repeat itself – possibly for the last time before that new blank slate other monkeys can start anew.

The question is… Should we buy, hold, or build that doomsday shelter?

 

MARKET TIMING

I’m just no good at market timing. I couldn’t even pick it within a year. Though I tend to do alright over a two to three year span, but who knows.

I know that I did bought Monadelphous at mid $16 to high $15 some three years ago. Just to watch it crash to $10, bought some more; crashed to $7.50, (nervously) bought a few more shares; crashed to $5 and $6… gave up on it and think about the long-term stuff. It’s now around $16 so yay, breaking even after three years on the first account – doing pretty dam well on the others, thank you very much.

Then there’s a property I “generously” valued at $550k to $570 four years ago. Didn’t bothered to bid as it climbed to $600k+ in a few sec. The same property now goes for around $1m.

Then there’s those stocks I thought was good value but the business cycle “aren’t right” and so I should wait to catch the bottom… only to be stuck at the bottom as it quickly rises before I thought it should.

But then there are a few good calls on overpriced stocks that tumbled soon after; or cheap that rises almost right away… As to why AHY or APA haven’t yet crashed is a bit of a case study to look into soon enough.

 

So that’s my brilliance at market timing… others will no doubt be much better or worst. Point is… should an investor try to time the market?

 

TIME IN THE MARKET. NOT TIMING??

A regularly quoted nugget of wisdom (by long-time investors) is the time an investment is in the market, not the timing of the market’s high or low.

While that observation might generally be true, there are a whole lot of ifs, buts and assumptions needed to make “time in the market” a good advice for intelligent investing. One being that the average investor does not need cash from their investment for living expenses or emergency; that invested capital can stay for as long as is needed for the investment to grow. That and it’s also assumed that there is a regular infusion of capital into the investment fund.

While that might be true of well to do investors and reputable (monopolised) managed fund… an average investor cannot really just put money in and not taking them out until profit is realised (whenever).

 

SO, WE SMALL MONEY. WHAT TO DO WITH TIMING?

Most investors, even us eager baby Warren… we have a limited amount of capital and that piggybank.

We of course want to make the most of it… by buying low to hopefully selling high at a later date. The lower the price, the better, obviously.

So knowing the depressive views of that doomed future, what are we to do? Hang onto our little cash hoping for a crisis then take full advantage?

I can’t advise, and don’t take this (or anything I say) as advise… I know, who the heck takes advise from a dude on the web – you take advise from a dude in a nice glass building because paying for things mean it’s good and honest.

So… what would I do…

 

DO BOTH

Phillip A Fisher gave tells a great story of an intelligent investor quibbling over eighth and quarters on a stock price just to lose a chance to purchase what would have been an amazingly profitable investment.

Buffett is famous for telling us he doesn’t give a damn about interest rate, macro-economics, geopolitics and all that theatres. Just focus on buying quality businesses at reasonable prices.

Here’s what I think…

One, do study and analyse a stock as a business. Buy into only businesses you can understand and reckon is an outstanding one… and only buy at a “reasonable” price. BUT.

But do that reasonable price stuff when the market and the world are “normal”, are reasonable.

When the world economy seems to be on the verge of a crisis… be more cautious and greedy by demanding a bigger discount to that “reasonable” long-term valuation range you’ve estimate the asset to be within.

Do the same when the stock’s industry is in the gutter and no body want to touch anything related to it.

So in a mining slowdown and bust… don’t buy miners and its services companies at “reasonable”… buy at the ridiculously reasonable low prices.

 

When the market is experiencing its irrational exuberance… try not to sell at the “reasonable” long term value. Hang on for that ride until it get a bit too ridiculous. And if you’re wrong and couldn’t get off at the tippy-top… and chances are you can’t and won’t until it’s long passed… You’re buying/owning quality businesses so hanging on to them isn’t a bad thing either. Can’t make all the money in the world.

 

It goes without saying that if a bargain, at below or above, that range of reasonableness can be had… take it regardless.

So while you can’t catch the top or the very bottom in a boom or a panic… have a real sense of what the value is, what the potential losses vs gain would be, then take some greater advantage of the market’s sentiment, both ways.

How much further up the cliff you want to ride; how much further down the slide before you jump in… depends on your sense and judgment of the market’s love or hate affair with the market, the sector, the industry and right down to the company.

For investors with smaller amount of fund, being patience and go along with the market this way could add a few percentage gain than merely buying the moment it’s “reasonable”. Note too that a “reasonable” is not merely the right price based on discounted cash flow or earnings… but reasonable at your own required rate of return, your own estimate of the company’s earning power, discount further against your own sense of the risk that your estimates are wrong or the future not as bright as today etc. etc. In short, a reasonable price already discount the possible (near term) negatives… making the average earnings over the life of the company after potential bad years and cycles “reasonable”.

 

 

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