By Michael Osteen
Who hasn’t heard the old saying about whether you perceive the glass as being half full or half empty?
The fact of the matter is that it is a common expression used to indicate that a particular situation could be seen as an opportunity or cause for optimism (half full), or on the flip side it could be seen as problem or pessimism (half empty).
The other day I received an inquiry and we proceeded to chat about a number of items all related to investments and the stock market. As we talked, I noticed throughout the conversion the individual was viewing the present situation of the stock market as being half empty. He was reluctant to consider any type of investments at the current time since in his view the stock market was overpriced.
We all have read the headlines going back to the end of January of this year where the Dow Jones Industrial Average (DJIA) hit 20,000. The media coverage was massive with some articles saying it was time for investors to buy more equities in expectations of additional gains, as well as an equal number of articles saying that you should sell all of your stocks as there were sure to be a major correction and you stand to lose thousands.
Most people’s understanding of the stock market and how to buy and sell stocks and overall how to invest in very limited. Most are told that you buy stocks when they start to go up and not when they go down.
As Warren Buffett says, “For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.”
Buffett has shown us over and over again that value investing is a proven method and has worked for over 85 years.
The basic concept of value investing is to buy when the particular stock is selling at a discount.
Most people place too much emphasis on the macroeconomics of the overall market and not enough emphasis on the individual company.
Value investing looks at the individual company, often referred to as “bottom up” analysis. However, most people look at the macroeconomics, often referred to as “top down” analysis. Commonly most individuals follow the crowd and this typically leads to under-performance.
Buffett tells us, “Most people get interested in stock when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
Various studies have indicated that the stock market is inefficient and as such you can always find value opportunity provided you know what to look for and where to look.
The term “inefficient” simply means that the stock market makes mistakes in pricing the stock of companies, which in turn creates opportunities for value investors and this occurs even when the stock market is “overpriced.”
It would appear the individual did not have a full understanding of these details and how you can still make above average returns even in this so called “over-priced market.”
For example, Port Wren Capital just finished researching a company that we invested in and recommend to our subscribers on March 20, and as of the writing of this article has already gained 24.12 percent so far. This is only one example. And yes, that is in this so called “overpriced market.”
So as you can see, it pays to know what to look for and how to find value investments even in today’s market.
To use another quote from Buffett: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
In other words, you can’t follow the crowd; you have to be an independent thinker.
To ascertain additional information about value investing research, contact me today for a complimentary meeting.
Michael Osteen, MBA, is chief investment strategist with Port Wren Capital LLC with a 44 percent, one-year, and a 36.04 percent three-year annualized return performance using independent value investment research. Email him at email@example.com or call 803-415-1935, or visit www.portwrencapital.com.
This column is not to be intended as investment advice. It is solely for general information, and you are advised to perform your own research and due diligence prior to making any type of investment and that investing in stocks involves risks that could result in part or all of your capital invested.