Value Investing / Main Index / previous / next

September, 2015


As of this writing, late 9/13/15, the major U.S. common stock indexes are down about 10% from their highs, while the S&P 500 is down for 2015 and has only moved up about 1% including dividends in the past year. Meanwhile, the Fed may before long raise interest rates for the first time in quite awhile, the China stock market is doing crazy things, another U.S. government shutdown could be looming, there's an immigrant crisis in Europe, the Middle East, and Africa, intense fires are raging in the American west, and the total U.S. equity market value to gross federal product ratio (which Warren Buffett uses to determine when overall equities are fairly priced) still, despite the correction, stands at around 1.16 (while in the past Buffett has suggested that average investors buy when it is 0.80 or below).

What is a person to do?

If one's approach is to invest regular amounts on a regular basis and hold for the long-term through carefully selected low cost mutual funds in a 401k or another retirement or tax-deferred account, the answer might be: nothing new. Investments made while the market is down will buy more shares and the recently lower prices will mean on average a lower cost basis. If the market goes down further, the next regular infusion of investment funds will provide a yet lower cost basis, setting up good profits down the road when one's money may be useful for the intended target, whether paying for college expenses, a better home, retirement, and so forth.

On the other hand, if one has been holding off investing, feeling that stocks were too high, they are a little more attractive now, but still well above the kinds of lows that were last seen in early 2009.

However, there may in my view be some occasions for stock investing now. Many investors like to always be somewhat invested in the stock market. It is a good hedge against inflation, providing better real returns than bonds or real estate, for instance. If one already has plenty of reserves set aside, has paid off debts, and has managed an otherwise conservative allocation of investments, one's preferred risk-adjusted stocks allocation might well call for at least 20% up to maybe at most about 70% or so (if already financially independent, for instance) in the stock market at all times. The strategy then might call for adding more common stock shares when one's desired portion of them has declined 10% or more, as is probably the case currently.

One might also be following a set, proven strategy. Stocks bought and sold in accordance with "Value Line" (typically available via subscription or online and in hardcopy form through libraries or brokerages) investment recommendations, for instance, have tended to do better than most. In such cases, once stocks have been redeemed, the strategy may call for new share purchases to replace those that were sold.

Assuming that one of the above or other reasons exist for continuing to invest in stock market assets, here are several that appeal to me these days as having good risk-adjusted total return potential:

Eaton Corp.ETN$54.6811.9%14.1%3.9%
Fastenal CompanyFAST$38.2111.8%15.2%2.9%
Fluor Corp.FLR$45.120.9%11.5%1.9%
Infosys Technologies, Ltd. ADRINFY$17.6810.4%9.5%3.2%
Kohlberg Kravis Roberts & Company (L.P.)KKR$18.406.4%0.0%9.1%
Qualcomm, Inc.QCOM$54.3120.4%19.3%3.5%
Royal Dutch Shell, Class A*RDS-A$49.920.0%0.0%6.4%
Scripps Networks Interactive, Inc.SNI$52.627.3%23.5%1.7%
Synaptics, Inc.SYNA$74.2524.1%0.0%0.0%
Taiwan Semiconductor Manufacturing Co., Ltd. ADRTSM$20.0421.1%5.6%2.9%

(*affected by the low price of oil, a temporary factor)

On the other hand, if the past few weeks' stock market dives have set off panic attacks, chances are your present allocation for equities is at least a little too high, in which case immediate selling is not recommended (as likely to result in the opposite of a fundamental rule of investing: buy low; sell high), but as the stock market inevitably rebounds some at times from its latest lows, gradual, careful selling of one's weakest equities may be in order.

In addition, one might look at even one's stronger assets to see if a few of them might be at or close to one's original target levels, in which case they might be partially or fully sold off as well.

Once one is comfortable with the new allocation, remaining equities can be held for the long-term, even added to while "Mr. Market" is offering them at relatively bargain prices.

Is shorting the market in order? I am not a professional, so, as in the disclaimer, do not take me seriously. Nonetheless, true confessions: I have tried it and have gained a little more than I have lost in the process. Maybe I was just lucky. It is not recommended for any funds one cannot afford to lose, and in my own case there was a good deal of nail-biting at times. Still, if experimental forays into this very risky side of investing seem to be your cup of tea, who am I to say not to put your toe into the murky water? Another possibility might be to rely on one's financial advisor for explicit guidance and then enter this arena only if his or her record of success with short-selling is impressive.

If in doubt, though, about the wisdom of investing long in even good company stock shares, there is another course: wait. On average, stock markets have provided excellent buying opportunities about every four years. We enjoyed drops that met or almost met bear market proportions in 2008-2009 and in 2013. Within the next couple years, though there are no guarantees (and in the 1990s, for example, stocks just continued year after year to go up to absurdly elevated levels), chances are good we shall again see big drops, and then the pickins' will likely be juicy.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

Value Investing / Main Index / previous / next