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Jelly Roll Capital Equity Research |
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Market Analysis, Education, and Wall Street-Quality Stock Reports |
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The Intelligent Investor and Today’s Markets |
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Today I feel compelled to make an attempt to put the last week or so of market movements in perspective. To start, I encourage you to read the last sentence of the piece on top stocks for June. For those of you who are lazy and don’t feel like reviewing it, I end with “Best of luck to all, and when the market crashes, keep your cool and start bargain hunting.” Now, in the week and change I was gone, the market did decline by a fairly significant margin - especially when considered on top of the decline today. I don’t pretend to time the market, and I won’t guarantee that I called the absolute top because I cannot know that but in hindsight. However, at the same time, how many of you are now worrying about what the market will do after something like four out of the last seven days showing a Dow drop of greater than 100 points? If so, you have ignored some of the basic tenets of Benjamin Graham’s The Intelligent Investor, which I had the pleasure of reading for the second time while on vacation. With Warren Buffett describing it as “By far the best book on investing ever written,” I don’t feel like I have much of value to add to that description. What reading Graham reminds one to do is to view investing as becoming the owner of a business - and to be patient in doing so, because although the market does misprice stocks, eventually those discrepancies will be eliminated. One stock that I closely follow is Headwaters (HW). I like the combination of businesses the company operates, but right now nobody else seems to like coal synfuels (who would, with ethanol being heavily subsidized?) or building products (nobody needs building products right now). The stock has continually gotten cheaper since mid-February when this site, and the Headwaters stock report, went online, and if the stock falls down to near $16 I plan on being a buyer. Similarly, and perhaps more in-tune with Benjamin Graham’s teachings, is the purchase of leading companies that have recently fallen in price. American Eagle (AEO), perhaps the best retail stock, has fallen 4% in less than two weeks. Do I believe American Eagle’s intrinsic business has changed appreciably in value? No. A similar story exists for Ceradyne (CRDN), which seems to have had positive news, if anything. Accenture (ACN) also dropped a bit; as I mention near the end of the Top Stocks for June column, I believe Accenture is one of the best companies in the world, and the stock seems to be reasonably priced. A good combination? Yes, and even better if it gets cheaper. In a similar vein, companies like Johnson & Johnson (JNJ) and Amgen (AMGN) have built reputations as innovative industry leaders. Yet currently, both trade for around 15x free cash flow. ExxonMobil (XOM) trades for about 13x free cash flow. Regardless of the volatility and what one may see or hear on CNBC, stick to your guns and buy good companies. Things will work out from there, and your results in doing so should be “satisfactory.” |