Those of you who’ve been reading for a while know that I’m completely agnostic on market timing. That said, I’m currently reading The Davis Dynasty (which is excellent, btw), and this quote jumped out at me.
That article alone should raise some red flags. But what really concerns me is the headliner in that IPO group- Oaktree.
Oaktree is run by value guru Howard Marks (his book, The Most Important Thing, was one of my five favorite books last year). He’s not going to be offering shares in Oaktree if he thinks its under or even fairly valued; he’s only going to be unloading shares if he thinks the firm is relatively richly valued.
The other offerings also seem scary. I admittedly haven’t looked deeply at any of them, but all of them seem to be private equity cash outs and/or speculative plays. In other words, more professional investors taking money off the table and junk companies taking advantage of low risk premiums- all signs of a market top!
So what’s a small, individual investor to do in the face of an overvalued market?
Nothing.
Provided, of course, that you’re invested in a group of companies you believe in and think are materially undervalued.
Even in the most overpriced markets, there are huge bargains to be found if you look hard enough. For example, the S&P hit its tech-fueled all time peak in ~March 2000 and preceded to decline significantly over the next two years. Today, it’s still ~15% below that peak level hit 12 years ago. But there was still plenty of value in old, stodgy names like Johnson and Johnson (JNJ, Financial), which had ~70% return over the next two year while the S&P was ravaged.
Perhaps you can be a little quicker to sell stocks as they hit your fair value targets. But the moral of the story is, if you’re following a solid value strategy of investing in companies way below what any rational business person would pay for them, you should do just fine even if the markets pull back by 20-30%.
If, however, you’re following a strategy of momentum investing or flipping IPOs, it might not be the right time to quit your day job!
A new-issues craze is always the last stage of a dangerous boom.Literally as I read that line, I see this article on CNBC, heralding the busiest flurry of IPOs so far this year.
That article alone should raise some red flags. But what really concerns me is the headliner in that IPO group- Oaktree.
Oaktree is run by value guru Howard Marks (his book, The Most Important Thing, was one of my five favorite books last year). He’s not going to be offering shares in Oaktree if he thinks its under or even fairly valued; he’s only going to be unloading shares if he thinks the firm is relatively richly valued.
The other offerings also seem scary. I admittedly haven’t looked deeply at any of them, but all of them seem to be private equity cash outs and/or speculative plays. In other words, more professional investors taking money off the table and junk companies taking advantage of low risk premiums- all signs of a market top!
So what’s a small, individual investor to do in the face of an overvalued market?
Nothing.
Provided, of course, that you’re invested in a group of companies you believe in and think are materially undervalued.
Even in the most overpriced markets, there are huge bargains to be found if you look hard enough. For example, the S&P hit its tech-fueled all time peak in ~March 2000 and preceded to decline significantly over the next two years. Today, it’s still ~15% below that peak level hit 12 years ago. But there was still plenty of value in old, stodgy names like Johnson and Johnson (JNJ, Financial), which had ~70% return over the next two year while the S&P was ravaged.
Perhaps you can be a little quicker to sell stocks as they hit your fair value targets. But the moral of the story is, if you’re following a solid value strategy of investing in companies way below what any rational business person would pay for them, you should do just fine even if the markets pull back by 20-30%.
If, however, you’re following a strategy of momentum investing or flipping IPOs, it might not be the right time to quit your day job!
