Despite what the market does from here, the truly compelling investment opportunities are gone. That is, if you focus your efforts on pricing stocks and not timing stock markets.
IN PICTURES: Eight Ways To Survive A Market Downturn
Super High Yield Equity
Back in March, you had opportunities that can only be explained by completely irrational behavior. For example, American Express (NYSE:AXP) was trading at $10 and it was a company with a franchise that could deliver minimum earnings power of $3 a share.
Value investors saw this 30% earnings return and piled in. The result was three-bagger. Latin American steel company Ternium Steel (NYSE:TX) was pushed down to $4 a share or $800 million despite the fact that book value per share was north of $20 and that the company had earned nearly $2 billion in free cash flow in 2007 and 2006. Today, those shares are near $30.
Patience is Bliss
Whether you benefited from the opportunities last spring or not is no longer the issue. What matters now is an understanding that the easy fruit has been picked. There are some relatively decent opportunities that still exist, but overall investors will have to learn the joys of patience going forward. Patience matters because the price you pay for a stock determines the ultimate value you will receive.
And today, prices in many cases are a lot higher than they were several months ago. Buying Goldman Sachs (NYSE:GS) at $60 or $70 a share was a chance to get a first rate franchise for a fraction of book value. Today, the stock has almost tripled and if you buy it today, and you won't see it triple again any time soon.
I'm not suggesting that you wait to see if the S&P hits 700 again, because that won't likely happen anytime soon. But exercise patience - if you've missed a stock, don't go chasing because the price keeps going up.
There is still some opportunity remaining for the patient investor. Names like construction equipment firm Terex (NYSE:TEX) still trades for less than half of sales, and is run by first rate management. The oil refiners, which continue to be frowned upon, are at historically cheap valuations. Tesoro (NYSE:TSO) trades for one-tenth of sales and two-thirds book value.
The Bottom Line: Nothing Else Matters
None of the other tenants of value investing - risk aversion, being contrarian - matter much without patience. Learn to sit still and many of Mr. Market's miseries will be avoided. (For related reading, check out Why Warren Buffet Envies You.)
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