Today, I have received a comment from the “TIP Guy” of The Income Portfolio blog, under my previous post, Investing Ideas in a down market. He has asked two questions and that lead me to this article for readers.
He has asked the following questions:1. Are we willing to look at opportunity, or continue to just see only the dooms day scenario purported by media sensationalism2. How do individual investors identify those opportunity?
As a value investor, it is true, we are going through a very important time to take some serious decision to invest. Those who are working with their own “Circle of competency”, probably doesn’t have time to wait for buying any interested business that falling to his circle of competency range.
It is true that, present recession is a long lasting one compares with any previous happened. Lots of assumptions are available everywhere in the world regarding the recession and its possible bad outcome. Worldwide media spicing up such rumors to add more fire to the panic retail investors head. As a value investor, yes this is the right time to act for identify possible businesses to buy that others missing due to panic.
It is sure that the market will fluctuate more and more in near days. Stock prices will come up and down severely than any ordinary time. We should learn from the history. In the past, there were economic recessions happened but cured as well. The only disadvantage of the present recession is, it is long than any previously happened recessions. But, there are similarities in the factors leading to such recessions. Yes, like any other previously happened recessions, present one also depends on macro economic factors than micro factors. Read my previous article to know more about macro and micro economic factors and how an investor need to consider both to take any investing decisions.
If you are the one following the successful practices and advices from great value investor Benjamin Graham, you never need to worry about the difference of value and price of a stock at present. It is certain, most of the best stocks are under pressure and they are now very attractive to buy than any other time.
For an individual retail investor, building and maintaining Circle of competency is the only way to identify best businesses to buy. Once after identifying any business within one’s circle of competency, a value investor can easily move further to the next step of analyzing the fundamental strength of the business and long term profit possibilities. There are articles in this blog to digg for the same.
Here is an example to concrete this idea: As a human being, we all required to have water every day to survive. Use the same theory to identify best businesses to invest. Sharpen your focus to the companies with products or services that public not able to avoid or able to survive without, irrespective of any economical changes, recessions or whatever it is. List such companies and move forward to the next step of analyzing its economical strength and profit possibility to make any investment on this business.Yes, this is the same idea used by Buffett. He may be the happiest man to see recessions because it always giving him endless opportunities to buy best businesses at the right price.We have another advantage from this time that is; we don’t take more caution on the price side to buy a good stock. Thanks to the recession as an investor. Due to the same, I am sure, price of almost all the good companies are down and meeting the margin of safety. If you are still buying the stock with little more prices, you need not to worry because of the long run; it will give you enormous wealth.Major points from this article:1. Recessions are good for value investors to buy nice businesses/stocks in the right prices
2. Building your “Circle of competency” is a must to identify best businesses.
3. As a macro supporting factor, a value investor need not to worry about the recession at all.4. For a long run, buying the stock with little more prices, even do better because the prices of the businesses anyway, par to the required line to buy or just above the line, but not crossing the limit that, a value investor need to be cautioned.If you have any queries, don’t hesitate to comment the same hereunder the article.
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