There’s nothing like a 500 point down day in the Dow and an 11% nine day decline in the S&P 500 to get a value investor’s blood pumping! I’ve been waiting for a pullback, but when the dipshits in Congress got it together and passed a debt ceiling deal, I thought the bleeding would stop for a while. I was wrong, and very few sectors or stocks were spared. Even gold and silver took a hit. Should we have just defaulted? Anyways, where do we go from here? I’m never good at the macro thing (if you’re looking for that, check out TBP or TRB; both are fairly bearish right now) but whenever there are selloffs like these, bargains are bound to be found. Plus, the bond market is looking good, unlike in 2008.
So how do you deal with volatile markets? Take a breath, don’t jump out the window, and check out what I’m reading:
- Speaking of finding bargains, one of the best places to look for contrarian plays are heavily shorted stocks. Bespoke has a list of the S&P 500 components with the highest short interest and no surprise there are some value investing favorites on the list, including GME, SVU, and WPO.
- Is Berkshire Hathaway a contrarian play? Its at its lowest price/book ratio since the market bottom in March 2009.
- Another good place to look for bargains and ideas? Your own portfolio and companies that deal with them.
- Vitaly Katsnelson, author of The Little Book of Sideways Markets, has some excellent advice for evaluating companies and markets. For readers who have not followed Vitaly, he has a very interesting background as well. His site and latest book are must-reads.
- Remember that even in the worst of markets there are winners. A few months ago, The Frog’s Kiss featured Allied Healthcare International. It was a ridiculously cheap stock beaten down for all the wrong reasons. Well, last week it accepted a buyout at a pretty big premium. Congrats Andrew on a great call.
- While you are out there looking for cheap stocks, its vital you avoid mistakes. Frank Voisin posts on AMSG and its overstated cash flow while Saj Karsan writes about a net-net that just realized its high potential downside.
- We all need to read non-investment related material to take our minds off of things. As a die hard music fan, I appreciated the 5 albums test by Steve Hyden and agreed with most of his findings, but c’mon Radiohead doesn’t pass the test (even though King of Limbs sucks)? Wilco and Spoon the same band? Kanye gets by with an autotune album (808s & Heartbreak)? Now I really am worked up.
Finally, whats the best advice when there is panic? As Ravi at Rational Walk tweeted “Did anything that happened today change your (intrinsic value) estimate? If not, who cares?” Invest like your buying a business and move on. Happy hunting!