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I wouldn't know a screaming deal if one smacked me in the face

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July 21, 2009 – Comments (13)

Or: Confessions of a Dirty Bottom-Fisher

While ruminating on my previous blog about stocks not being attractively valued at the moment, a few important thoughts struck me.

1) The title of my previous blog implies that I know (and more importantly, act upon) the exact time when stocks are a screaming deal. Truth is, like many of you I fancy myself a bottom-fisher. I LOVE me some undervalued equities, especially ones with attractive technicals and dividend growth.

2) In CAPS and real-life, however, I mostly REJECTED the great opportunities presented in November and March. Did you?

3) What is "attractive" will vary depending on your size, experience, goals, style, etc. But wouldn't most investors during the last decade have KILLED to have access to prices and yields as they currently are? Am I missing out on great opportunities by staying mostly in cash (and similarly, with only 66 active picks)? I frequently worry that by being too picky I lose out on a lot.

Case in point:

On Nov 19-21 of last year, I watched in horror and read blog after blog and news item after news item trying to piece it all together. I made 0 CAPS picks during that "bottom", and 0 real-life trades.

On March 5th, 6th, and 9th of this year I got a bit more brave and definitely recognized that the market was oversold. I green-thumbed 7 or 8 things and very profitably gave some ultrashorts the red. This sounds like a sweet deal, but given the kinds of deals that were out there, I should have been green-thumbing A LOT MORE. If you want a real bottom-picker, just look at Ultralong. According to my IRA records, the only thing I bought with real money during march lows was a tiny stake in JNK, which has been yielding and appreciating handsomely (thanks go to EverydayInvestor for his JNK pitch).


The point is this: that if I had successfully bottom-fished say BP (thanks go to GMX for the BP tip) at $34, I'd have been sitting on a major oil company, that basically trades like the market but yields around 9.8% anually!! Imagine if I'd put $5000 (a majority of my fledgling IRA) into BP at $34 and just held and held. I don't imagine it would be regretted in 10 years. 

How many BPs (yielding 10% mind you) could be in my CAPS and real-life portfolio right now? I don't want to know. But by asking the question, I'm hoping that I'll have the guts and foresight to act next time. There's always a shoulda, a woulda, or a coulda, but they're only annoying if we constantly use them and don't learn from them. 

Happy deep value hunting.

Signed,

BigFatBEAR (who is quite certain that there will be another bottom, that it'll last for around 3 days, and that he'll mostly miss it) :P

13 Comments – Post Your Own

#1) On July 21, 2009 at 3:27 PM, kaskoosek (55.71) wrote:

BFB

I remeber telling you that miners were a screaming buy especially ZINC. You were bearish on these at the time.

 

I got lambasted by GMX.

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#2) On July 21, 2009 at 3:34 PM, bigpeach (27.97) wrote:

Correct me if I'm wrong, but it sounds to me like you want to invest in long term value, and yet your purchasing decisions are made like a trader trying to time the bottom. I would suggest aligning your strategy with your goals. A desire to invest for the long term combined with a desire to catch the very bottom sounds like a losing strategy to me.

Don't be so certain there will be another bottom. Isn't that why you missed the first one?

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#3) On July 21, 2009 at 3:44 PM, kaskoosek (55.71) wrote:

bigpeach

I like your FRO pick. 

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#4) On July 21, 2009 at 3:44 PM, BigFatBEAR (29.09) wrote:

Kask,

I don't remember him lambasting you, per se, just stating that he thought miners had further to fall and that basic mats demand seemed very low for at least another year. Besides, I asked you to throw out some tickers and you never did! :P

ZINC looks almost overvalued to me at the moment, especially with that collapsing quarterly revenue.:-/

I'll keep my eyes peeled on ZINC and other low-debt miners when the next pullback arrives.

Your rapidly rising score and accuracy have been duly noted, and next time I'll probably pay your thoughts more heed. Sorry if you felt he (or I) was insensitive, but neither of us intended it that way at all. Even if you like Faber and miners and I like Krugman and energy, you're on my favorites list for a reason, good sir.

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#5) On July 21, 2009 at 3:47 PM, BigFatBEAR (29.09) wrote:

bigpeach

You are right on, with regards to my approach and habits. This might take some time for me to digest and use, so thanks for your thoughts.

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#6) On July 21, 2009 at 3:54 PM, kaskoosek (55.71) wrote:

BigFatBEAR

Zinc at the time.

No longer right now.

 

That would be horrendous, I keep it open just for the sake of ammasing the +500. 

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#7) On July 21, 2009 at 4:34 PM, BigFatBEAR (29.09) wrote:

I interrupt this dangling thread to bring you a special TOP TEN Fool Alert:

UltraLong appears to have finally closed a decent amount of his leveraged long picks today. He's still green-thumbed on many sector and other ETFs, and red-thumbed on the bear ones, but looks like he may finally be putting his CAPS money where his bearish mouth is...   cool. :)

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#8) On July 21, 2009 at 6:06 PM, BigFatBEAR (29.09) wrote:

Drat, I seem to have forgotten to include yonder youtube vid again. Well, here goes.

Man, I am bored today!

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#9) On July 21, 2009 at 8:40 PM, ozzfan1317 (79.25) wrote:

If you picked the right stocks there were a lot of bargains in march.

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#10) On July 22, 2009 at 12:20 AM, TMFUltraLong (99.95) wrote:

BigFatBEAR (99.52) wrote:

I interrupt this dangling thread to bring you a special TOP TEN Fool Alert:

UltraLong appears to have finally closed a decent amount of his leveraged long picks today. He's still green-thumbed on many sector and other ETFs, and red-thumbed on the bear ones, but looks like he may finally be putting his CAPS money where his bearish mouth is...   cool. :)

All I have left to do is change my avatar right? =)

UltraLong

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#11) On July 22, 2009 at 12:30 AM, caltex1nomad (< 20) wrote:

 BFB. Dive on in the water's fine. I have been on a buying spree since the begining of '08 doing the Dollar Cost Averaging Dance (That's with real Money not CAPS Monopoly Money). I am now sitting at even money for the year and a half I have been in and I'm still buying for the long haul. Don't be affraid.

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#12) On July 22, 2009 at 9:19 AM, TMFBabo (100.00) wrote:

Based on your CAPS name, I'm not sure how talented you are when picking undervalued equities.  As you've said, the two best times to buy have been 11/20 and 3/9.  If you couldn't get yourself to buy stocks at that time, I don't know what will change that. 

On both those dates, some stocks fell to such ridiculously low prices that I literally couldn't stop myself from buying.  Many have been easy doubles and triples.   Notice I said some stocks.  Others were cheap but not irresistible.  Unfortunately, the best times to buy are often when everything seems to be headed towards zero.  Based on history and how many times stocks have NOT headed towards zero, I feel safe buying companies that are profitable, healthy, and cheap.  If a stock is not all 3, I hesitate to buy it unless the cheapness is just outstanding.

Based on 10 year average PE, which helps smooth out the cyclicality, I believe the market is neither undervalued nor overvalued.  Yes, the fundamentals of the economy are horrendous, but there are still companies out there that are strong buys even now.  I believe, as Ben Graham did, that its is quite possible to find undervalued equities in undervalued and average markets.  Just because the market itself is not cheap does not mean there aren't plenty of bargains to be had.

I see many equities that are worth holding for the long haul because there are still ones that have room to double/triple even from here.

If you truly love undervalued equities and are able to have a long-term focus, I believe you're right in saying that investors of the last 10 years would kill to have some of the prices we still see today.  However, the prices are just so much higher than in November and in March.  

If the market does plunge again, and it definitely could, I hope you are able to buy in.  I agree with caltex1nomad that dollar cost averaging is prudent.  Even if you'd put just 20% of your money to use in November and in March, you'd be thanking yourself right now.  Waiting for THE BOTTOM to go all-in with your cash is a very dangerous game.

As Buffett and I'm sure others have said, it's better to be early than to miss a rally completely.  Many of my CAPS calls for the 3/9 bottom came in Jan and Feb.  However, I bought many of those equities in March in real life when the prices were simply irresistible.  The problem with some is that they're eternally bullish and buy stocks that aren't really that cheap, healthy, or profitable.  If you can identify great bargains compared to the market and compared to their respective sectors and industries, you should have no problem jumping in whenever Mr. Market presents some drool-worthy prices.

If you see a good deal where you can buy a stock for 30 cents on the dollar, I believe you should at least take a modest position.  They're still out there today, although much more rare than earlier.  If you're unable to identify such bargains, I think you should expand your base of knowledge to be able to do so.  

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#13) On July 23, 2009 at 11:48 AM, bothisellhigher (28.89) wrote:

Gold miner AUY...natural gas+12% LINE...BP still just fine to buy +7%...don't say I didn't share my troika with you Mr. Bear...and really, it's ok to be long when the market is rising, even if logic and analysis and analysts say it should be dropping.  The time for selling and shorting comes as well...when support levels break.  That is not now.

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