After declines at the end of February and beginning of March, it is starting to look as if some sections of the U.S. market are attractive from a value perspective.
However, buying shares in a volatile market can be a challenging process. This is why it's a good idea to remind ourselves of the advice of some of the best value investors of all time.
Advice from Howard Marks
One of these investors is Howard Marks (Trades, Portfolio). Marks is considered to be one of the best "distressed investors" of all time. He has made a career, and a colossal fortune, buying companies that were in distress during periods of uncertainty, so he knows a thing or two about deciding when it is the right time to act.
The value investor recently published one of his regular "memos" containing his thoughts on the current market environment, titled "Nobody Knows II." It is well worth a read if you have the time and are interested in value investing.
A couple of his comments stood out to me as I was reading through the letter. For example, Marks tried to make it clear that it is impossible to pinpoint the exact moment that it becomes a good time to buy stocks in a downturn. We don't know what is going to happen over the coming days, weeks and months. Therefore, "there's no way to decide intelligently what the markets will do."
His answer to the question, "Is this the time to buy," was as follows:
"It is probably a time to buy. There can be no unique time to buy without we can identify. The only thing we can be sure of today is that stock prices, for example, are a lot lower in the absolute they were two weeks ago."
He went on to add that the only thing investors should be concentrating on is the relationship between price and value. There is no way to determine what the market will do next, and we shouldn't be wasting our time trying to make these predictions:
"Intelligent investing has to be based -- as always -- on the relationship between price and value. In other words, not "will the collapse go further?" But rather "has the collapse to date caused securities to be priced right; or are they overpriced given the fundamentals; or have they become cheap? I have no doubt that assessing price relative to value remains the most reliable way to invest for the long term."
Seth Klarman's value advice
Seth Klarman (Trades, Portfolio) is another hugely successful value investor who has earned a fortune for himself and his investors by buying securities at a discount to their intrinsic value.
Klarman's advice on value investing is similar to that of Marks. One of his best pieces of advice on the topic from his book, "The Margin of Safety," is:
"There is nothing esoteric about value investing. It is simply the process of determining the value underlying a security and then buying it at a considerable discount from that value. It really is that simple. The greatest challenge is maintaining the requisite patience and discipline to buy only when prices are attractive and to sell when they are not, avoiding the short-term performance that engulfs most market participants...
We are always long-term oriented. We never attempt to gauge near-term market movements; we have no edge there. We strive to make long-term investments that have truly compelling risk-reward characteristics."
These quotes are highly relevant in today's market. We don't know what is going to happen over the next few months with regards to the coronavirus outbreak, or what impact it will have on the global economy.
However, the economy will return to normal after the outbreak is contained and people stop panicking. Therefore, buying stocks with a long-term outlook at attractive prices is likely to prove to be a lucrative strategy, just as it has been in other periods of volatility in the past.
Read more here:
- Warren Buffett Loves Delta, But It Is Unlikely Berkshire Will Buy the Company
- Finding Bargains in David Einhorn's Portfolio
- Business Lessons From Jeff Bezos
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