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I Don’t Know How to do Market Timing

I Don’t Know How to do Market Timing

I don’t know how to time the market.

I wish I did.

If I could do marketing timing I would have bought US stocks in in the early 90s (I was pretty young but still!). Sold in early 2000, bought in October 2002, sold in October 2007, bought in March 2009.

That would be fantastic.

S&P 500 Market Timing Guide (Only Available in Hindsight)

Unfortunately I’m only good at timing the market in hindsight.

This of course isn’t useful, since my broker doesn’t let me backdate trades.

John: “[Phone rings] Hello, TD Ameritrade?”

TD Ameritrade: “Yes, this is TD Ameritrade.”

John: “I would like to buy 100 shares of the Vanguard S&P 500 Fund at the 1992 price.”

TD Ameritrade: “….[click]”

In all seriousness though, the above chart does say something about the long-term benefits of buy and hold (but you have to buy and hold for very long periods of time and suffer through large drawdowns).

But I’ve always wanted to do better than a long term buy and hold strategy. I think the best way to do that is through value investing.

US Stocks and Bonds are Overvalued

Today I was reading a MarketWatch.com article by Thomas H. Kee Jr. in which he states, “Ultimately, liquidity matters more than valuation to professional investors, and it is far more important to the market than any of the noise we are hearing.”

I think he is right insofar as what professional investors care about. The performance of US stocks since 2009 bears this out.

This is also supports my belief that US stocks and US bonds are in a bubble, the rise in price of these asset classes is based on liquidity (central bank money printing) and NOT valuations.

But if markets have anything to do with the real economy security valuations will eventually return to a market-based and realistic level of valuation regardless of central bank injections of liquidity.

Let me summarize what I’ve said so far.

1) Stocks and bonds are in a bubble due to central bank manipulation called “liquidity”
2) I don’t know how to time the market

In other words I know that stocks are overvalued but I don’t know when they will revert to a valuation based on company performance and realistic valuation.

So I don’t want to buy stocks that I know are overvalued when I don’t know when they will crash.

Buy Stocks at a Discount

I don’t know how to time markets and I believe US markets overvalued so I take the approach of value investing.

By investing in stocks that are trading for less than their book value I have a built in margin of safety.

That way I have good reason to believe I’m not buying a security that will drop radically in price since a value stock is by definition already undervalued.

I think it’s a great way to grow wealth in good times and bad.

Later this week I’ll be unveiling some additional refinements to my value investing metrics.

Value Stock Picks – January 2017

Value Stock Picks – January 2017

Value Stock Picks – January 2017

I’m a value investor which means I buy stock in profitable companies trading at a discount.

I’ll be tracking the stocks I like over at my Value Stock Picks page.

The information presented here, like all the content on this website, is not investment advice. These are stocks I own (or intend to own) but they might not be suitable for you. The information presented is accurate to the best of my knowledge, but no guarantee of accuracy is made.

Prices are as of 11 January 2017 on market close, unless otherwise noted. Market data is from morningstar.com.

Korea Electric Power Corp (KEP on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$18.27$23.5 bil$56.3 bil (converted from KRW)0.4$8.74 (converted from KRW)7.63%12.2%3.3

Korea Electric Power Corp “KEPCO” is a large cap electric company that transmits and distributes nearly all the electricity in South Korea.

I like this stock because the company pays a very nice yield. They have net income growth the past three years. I also think that people aren’t going to stop using electricity anytime soon, so it is in a good industry. With a price to book of just 0.4 it’s a steal.

It is an ADR, which isn’t my preference. But is is optionable.

I own 100 shares of KEP and have sold a covered call.

Brookfield Property Partners (BPY on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$22.17$5.8 bil$7.4 bil0.8$3.65.05%6.9%6.6

I would rather own real-estate directly because doing so provides crazy tax benefits. Despite looking into real estate previously I’m not in a position to join the class of landed gentry.

An alternative way to be a part of the real estate market is through a real-state investment trust (REIT).

A REIT is a company that owns, and often operates, income-producing real estate.

Like many other companies Brookfield Property (BPY) has issued stock that can be purchased.

BPY is a REIT that pays a nice 5% dividend and is currently trading at a 20% discount to it’s book value. It’s had modest revenue growth over the past three years and is profitable.

The properties BPY owns operates and invests in are located in North America, Europe, Australia and Brazil.

Unfortunately most of the assets under management are in the US (72%). I would prefer seeing more exposure in Brazil, Australia, and Asia.

Source: http://bpy.brookfield.com/~/media/Files/B/Brookfield-BPY-IR/events/BPY%20Corporate%20Profile%20November%202016%20FINAL.pdf

BPY is optionable. I currently have an option position on this stock and intend to acquire shares of this stock directly in the near future.

Value Stock Picks – December 2016

Value Stock Picks – December 2016

Value Stock Picks – December 2016

I’m a value investor which means I buy stock in profitable companies trading at a discount.

I have hopes for a paid stock newsletter (Global Value Intelligence). But I’ve decided to put GVI on hold and share what I’ve written in past GVI issues, as well as provide new stock information. I intend for this information to remain free for some time.

I’ll be tracking the stocks I like over at my Value Stock Picks page.

The information presented here, like all the content on this website, is not investment advice. These are stocks I own (or intend to own) but they might not be suitable for you. The information presented is accurate to the best of my knowledge, but no guarantee of accuracy is made.

Prices are as of 9 December 2016 on market close, unless otherwise noted. Market data is from morningstar.com.

Below are some of the stocks I like:

Nissan (NSANY on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$19.58$38.7 bil$40.9 bil (converted from JPY)1.0$2.16 (converted from JPY)4.20%10.5%9.5

Nissan has a price to book of 1.0 and an attractive 4.20% yield. It is an ADR and has no options. I generally prefer to own a stock on it’s native exchange, with the ability to sell covered calls, but I still like this stock for it’s attractive metrics, brand and yield.

Transocean (RIG on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$15.42$5.6 bil$14.5 bil0.4$2.168.1%4.7

The oil market in general has been pretty beaten down of late. The price to book is 0.4 which amounts to a 60% off sale. Despite the low price, Transocean is profitable, boasting $791 million in net income in 2015.

Mount Gibson Iron (MGX on ASX)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
A$0.34A$372.8 milA$392 mil0.9A$0.0824.7%4.4

I first discussed MGX in the October 2016 Global Value Intelligence Dispatch (GVI has since been put on hold). At that time it was trading at A$0.29.


Writeup as of October 2016

MGX is an iron ore mining company in Western Australia. It can boast A$392 million in shareholder’s equity but is trading at a market capitalization of just A$318 million. This means the company’s stock could rise by over 23% before its market value would even be equal to its equity.

Mount Gibson Iron recently received a A$86 million insurance settlement and is set to receive an additional payout in the future. Not only is this company undervalued but it brought in A$6 million in the three month quarter ending in June.

PanTerra Gold (PGI on ASX)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
A$0.08A$9.6 milA$39 mil0.2A$0.41138.9%0.4

I first discussed PGI in the October 2016 Global Value Intelligence Dispatch (GVI has since been put on hold). At that time it was trading at A$0.08.


Writeup as of October 2016

This stock is currently trading for 1/3 the book value and presents an exceptional value.
Despite the low Price to Book ratio PGI is still profitable. PGI brought in A$8 million in cash in 2015. In the most recent quarter PGI reported a 4% increase in gold production over the prior quarter and operating costs
3.7% lower.

Gold and gold miners have been beaten down over the past few years. By purchasing a stock in a depressed sector below book value there is a great deal of downside protection.

Triton International (TRTN on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$19.23$674.3 mil$665 mil1.0$2.679.16%10.7%9.4

I first discussed TRTN in the October 2016 Global Value Intelligence Dispatch (GVI has since been put on hold). At that time it was trading at $13.19.


Writeup as of October 2016

Triton International trades and leases intermodal containers and chassis. It features an attractive price to book ratio combined with a high dividend yield.

Triton recently merged with TAL and paid out a $.45 dividend on 22 September. This high dividend is most likely not sustainable. Shipping has been declining of late, but TRTN still managed to bring in $18.2 million in pre-tax income in Q2 2016.

Noble Energy (NE on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$7.64$1.9 bil$6.69 bil0.2$2.065.07%3%7.8

I first discussed NE in the October 2016 Global Value Intelligence Dispatch (GVI has since been put on hold). At that time it was trading at $6.34.


Writeup as of October 2016

Oil has been falling and with it the value of energy producers. Despite falling oil prices, NE is a fantastic value. The company has $6.7 billion in shareholder’s equity, but is trading with a Market Capitalization of $1.5 billion.

The 5.36% yield is attractive but not sustainable. Despite low oil prices Noble Corp is profitable. The most recent quarter that ended in June resulted in $687 million in cash from operations.

Anthem (ANTX on NYSE)

PriceMarket CapShareholder’s EquityPrice to BookEarnings per ShareYieldReturn on Equity (TTM)Price to Earnings (TTM)
$47.07$12.4 bil$23 bil0.5$9.382.77%9.5%5.5

I first discussed ANTX in the November 2016 Global Value Intelligence Dispatch (GVI has since been put on hold). At that time it was trading at $46.83.


Writeup as of November 2016

Anthem is a mid-sized health benefits company that works with employers and individuals to offer network based healthcare plans. While recent government incursions into the healthcare industry make me leery to invest in this sector I find the metrics to be quite favorable.

The Price to Book ratio is excellent, the yield is attractive and the company is profitable. I also think Anthem is well positioned to benefit from the “baby-boomer” generation (those age 50-85) as more of them retire each year.


Disclaimer:

As of 11 December 2016 John owns shares of NSANY, RIG, MGX, PGI, TRTN, NE, and ANTX. When possible he has also sold covered calls on these same securities.

Data is from morningstar.com.