Since August we have had a roller coaster market that has caused
many to lose their cookies during the precipitous down slides yet …….
… the "experts" come on CNBC-TV and are telling us non-experts
what to buy. They claim to be buying. It makes anyone wonder what they
are using for brains.
Each one of these mavens seems to have some proprietary
formula to understand that a particular stock is "undervalued" and
should be bought now "for the long haul". That's the long haul to the
poorhouse. We do not have poorhouses any more, but the government
expects the broke investor to live on Social Security.
In case you do not know it our Congressmen and Senators do not
get the same Social Security we do. They voted themselves a special
program to allow retirement on full salary with full medical benefits.
Do not squawk. You voted them in.
Today we have a special class of citizen that is a professional
politician. Many have never had a job and have been feeding at the
public trough all their lives.
Let's get back to valuation.
In a bull market it does not make any difference what those secret
formulas are because the stock would have gone up anyway. Again those
great formulas will not save the best "undervalued" stock when the
bear chews on equities. When the tides goes out all the boats go down.
There are books written with hundreds of pages explaining many
methods such as: Constant Growth Formula, Cash Flow, Income Valuation,
Discounted Cash Flow, etc, etc. Almost all are based on fundamentals from
the corporate balance sheets.
What brokers do not seem to understand is that no matter how
"good" a valuation is by any method chosen the stock will go down when
a bear market is occurring. Brokers call their clients to say what a good
buy XYZ is and then watch it lose money month after month. Here is a basic truth – there is no "good value" during a bear market. The smart investor will not buy
until the bear has run its course.
The best value during a bear market is a money market account.
The account will not make much money, but it will not lose 20, 30, 40% or
more. Cash is the best value.
Investors are told they must be invested at all times. This is not true.
There are times when no stock position will make more money than holding
any stock. Few brokers know or understand this concept and their
company does not want clients in money market accoiunts as they do not
make any money on them.
The first rule of valuation is not to lose money so smart investors
are not mesmerized by mysterious valuation formulas. Cash is king during
a bear market.