With the current markets reaching continued all time highs it is difficult when to enter the market and where to place your money. This week’s issue pertains to market timing and the effect on the value investor. As we all know the market has had an impressive run up the past few months and years since the low we experienced following the recession in the early part of this decade. We, however, need not be concerned on the current issues of the overall market, because the proper way for the value investor (in our opinion) to make stock selections is the bottom up approach instead of the top down.
By bottom up we mean selecting the individual stock first, by looking at the basic fundamentals and then deciding whether it is an attractive buying opportunity. At that point one moves up the “ladder” and looks at the industry, market, and ultimately economy as a whole. In contrast the top down investor does the complete opposite and for that investor the current price levels are nothing but headaches.
Even though we are going to select our stocks using the bottom up method, it is still a difficult time to find value stocks that are suitable. We feel that it takes an even keener eye and the ability to differentiate between what might constitute value and what might be an emotional response to place your money in something.
As far as market timing goes, no individual possesses the ability to completely and accurately predict the market and time their entrance and exit accordingly. The market may at times demonstrate trends that in the short term may in fact turn to be accurate forecasting, but in the long run the market is a difficult beast to predict. However, what can be said with complete and utter accuracy is that the stock market is the best place to invest given that the investing is done intelligently and disciplined. No other market or asset can generate the continued long term returns as the market can, and we feel that even given the current market climate of favoritism to growth stocks, value stocks are still available and waiting to be found. The difficulty will be having the patience and confidence in your investing strategy, but this is always the case with any investment not only the stock market.
Look for the value, dig deeper, you will find it.