Weekly Observations for 1/12/2018 — Buying Low

Last week, I pointed to an interesting chart showing the historical cyclicality between stocks and commodities. It’s been a popular chart this week among investment managers as we evaluate the risk and return prospects of various assets.

More importantly, it highlights the reality that sound investment opportunities can still be found — even in this era of excess valuations in nearly every asset class.

Here are a few examples:

– General Electric has declined nearly 50% since mid-2016 and has lost two-thirds of its value since 2000. Everybody loved this company years ago. Today, not so much. While it takes work to research what has changed in their business, what future cash flows may look like, and if today’s price presents an investment opportunity, the potential opportunity to buy low sure beats buying at the high.

–  Mining stocks have cratered since 2013, leaving companies such as Yamana, Goldcorp, and others available to be bought for significantly less than the liquidation value of their assets, while the average stock sells for 3.5 times liquidation value. (Some of today’s most-loved stocks are priced at 24x net value and higher!)

–  Companies such as Verizon and AT&T haven’t participated at all in this historic bull market for the past 5 years, resulting in attractive valuations that are half that of the broad market, and they have dividend yields hovering around 5%.

While many investors are blindly buying high and hoping assets go higher, there are increasing numbers of sound investment opportunities for patient investors willing to look for them. Prudent investing hasn’t changed, and buying low significantly increases the chances of being able to subsequently sell high. Of equal importance is the degree of downside protection offered in a portfolio constructed of investments purchased at reasonable prices.

Since I mentioned several specific companies, it’s important to note that these are not investment recommendations — do your own research or join me for an investment strategy discussion that incorporates your unique planning and investment needs. I have a position in these companies in one or more of our firm’s investment strategies.

Tax preparation letters were mailed to clients yesterday containing a lot of important information about your taxable (and tax-deductible!) activities throughout the year. Check your mailbox and let me know if you have any questions.

Our office and the markets will be closed on Monday in honor of Martin Luther King, Jr.  Have a great weekend!