Tuesday, December 6, 2011

Stay The Course

An old French Proverb: "buy on the cannons, sell on the trumpets"

I was recently asked "where is the market going?". I have no idea. Nobody knows. What I do know is, that if you own a basket of undervalued assets with a margin of safety, then you will do well over time. For the last 3 years, we have witnessed an almost unprecedented level of uncertainty/chaos in global markets. Many have extrapolated what has happened recently ( last 3 years ) far out into the future. Many believe the problems that face the Greece, U.S., Europe and the world will continue forever. These problems will get solved, but the medicine will be hard to swallow for many. On a recent Canadian business news network call in show, a private investor called in and proclaimed "doomsday". He completely liquidated his RRSP, paying the associated fees and penalties, and invested all the proceeds in gold and silver bars to keep at home. To me this is a kin to financial suicide and ringing a "buy bell" at the bottom of the market. When the "herd" are so negative and can only look backwards to recent events, with no regard to valuations or the future, then it's time to be invested. I suspect, looking 3 years out, this investor will be very disappointed with his gold and silver bar rate of returns.

In the mean time, as I've outlined before, it's time to be invested with a nose for value. If you overpay, then you can get hurt - I can attest to that. However, the cross-currents in the markets do provide opportunity, if you look around. I recently added to my position in Big Lots (BIG) which just reported their Q3 results. Analysts, had already taken down their estimates for BIG' s Q3, accounting for losses on a recently acquired retail chain in Canada ( Liquidation World ). BIG, fell short of analyst's estimates by $0.02, yes only two cents a share. The market turned on BIG, upset by the short term losses on their new retail chain, and proceeded to bid down BIG's shares by almost 10% in one day. The market shaved $220 million off BIG's market value, for a $15 million shortfall, as compared to last year ( even though management raised guidance for the rest of this year ). Who says the markets are perfectly efficient? I stepped in at $36.04 and added to my BIG position by 10%. There are other opportunities out there - BAC, CSCO (<17), LOW (<23) or MSFT (<24.50), but it will be a bumpy ride.

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