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Cornelius Chan Blog

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Bargain Bin Blue Chips Update Q2 Week 3

Pop1403 views  2012-04-23 12:11   Tagsblue  chip  dividend  bargain  bin 

The DJI closed at 13,029.26 on Friday, up +1.40% from last week's close.. The Dow is up +96.61% from March 6, 2009.

As I started doing last week, my bargain bin stocks will now have book value listings along with buy price, dividends etc. I understand that for a stock to be a bargain it must be at a price of at least half of book value. So I have revised my preset buy prices for the following stocks to reflect this new addition to my "stock purchase fundamentals". I am calculating book value by subtracting total liabilities from total assets and dividing the remainder by the total common shares outstanding. Based on my new revised preset buy prices, only Soc. Gen. is under-priced but I am not yet in the habit of buying European banks.

In addition to revising my buy prices lower, I am also rethinking my whole philosophy of when to buy these stocks. As the post '08/09 bull market grows older, the chances of another big crash increases. Slowly but surely, the statistical chances of another steep and prolonged Mr. Market downturn is increasing. Eventually, it will just happen. When it does, if it is anything like the last one, pretty much all stocks will fall in tandem, bottom more or less in tandem and then rise together once again. As J. Pierpont Morgain replied to people asking him what the stock market would do he said, "it will go up and down."

I have another 40 years of investing in front of me. Even if there is a steep downturn every 10 years only, it will be good enough for me. I will have 4 chances to buy low and another 4 to sell high - it is good to not be greedy (especially if you are not too smart!). Recent history indicates steep downturns and prolonged upturns happening more frequently than this though. After record highs of 1999, the stock market crashed to lows in 2002. That was the time to buy. After a prolonged 5-year upturn ending at Dow 14,000+ in 2007, it crashed to less than half that in 2009 and that was another time to buy. Then it had another prolonged rise and that is where we are now. Those of us who are more or less 100% cash are in the best place in my humble opinion. Investing in a longer term time horizon is the comforting and easy way to invest. I don't have to be too smart to do it right.

Comments Comments (2 )

  • BEL-AIR 2012-04-23 23:33
    Great points, and a great read C.W.R

    I staying in cash like you until I see the blood in the streets.
    Reply
  • Cornelius Chan 2012-04-24 10:12
    Thanks Bel-Air, good to hear from a fellow patient investor.
    Reply


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