Finding the bottom?

Stocks A to Z
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The old adage is “don’t fight the fed”, and clearly the fed is far from finished. On the other hand, the stock market is usually looking into the future when reacting to fed moves. By the time a clear signal emerges it is usually too late. Markets rally quickly upon reading the tea leaves, so hesitation costs the cautious.

Setting aside yesterday’s insanity, which appears to be a technical rally and not reflective of a change of direction, the markets are looking into early 2023 in anticipation of the end of rate increases. Each bit of economic news adds a quarter point here or a half point there toward the calculation of the final resting point for rate increases. Every month that passes without evidence of a retreat in inflation adds a month or more to market uncertainty. Trying to figure out the macroeconomic direction of the market is seemingly impossible. Indeed many, including Buffett, think it’s folly, hence their focus on individual companies.

I have a bunch of companies I follow, and many are selling at prices that look to me to be available only during the trough of bear markets. A lot of solid companies are selling at 10 times ttm eps or less right now. I have these on my watch list: T, VZ, MHK, WBA, WBD, which can all be had for under 7 times eps, while INTC, BABA, PKG, PARA, JLL, TROW, TFC, STT , USB, and CNA, are all selling for PE under 10. Valueline has JPM, GS, and AVT available for under 10 as well. These companies hardly ever sell at multiples to ttm earnings as low as we’re seeing. And these are just companies selling at under PE 10. Many more high quality companies are currently available for under 15 times earnings, for example MCK, which Berkshire has been accumulating.

Could the economy get worse in the coming months? Absolutely. Will PE ratios rise as earnings fall? Certainly. Will we see lower prices from here. No doubt. But are these good prices to start deploying cash? I think so. I’m horrible at market timing, so I have started buying into this decline and am already under water on some positions I started last week. How wrong can you go with T at 6.5x earnings and a 7%+ dividend, or PKG at a PE 10 when it hasn’t traded below that in more than a decade? Many folks are excited about GOOG under 20 x eps, or Disney under 20 times normalized earnings. It just seems to me that waiting for the perfect bottom is a mistake when so many good companies are selling at prices we would have deemed unbelievable opportunities over the past decade.

While we may not be at the bottom, I believe the sale prices currently on offer suggest we are getting close.

But, don’t fight the fed?

PhoolishPhilip

16 Likes
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FWIW, we are about 60% cash and will deploy much of that into index funds down the road. I do not feel as though the decline is over, that the Fed has at least 2 more 0.75 rate hikes to employ before they consider adjusting to lower increases. That said, I have been initiating positions in a few select stocks via limit orders. Sure, may go lower, and in fact will be happy if they do since I have lower orders in place to pick up more, but I feel confident that in the long run the prices we have bought at will be good for us. Picked up initial position in BRK at $264.10 and got some Alphabet at $95. I continue to look for places to invest, but keep a long view and a simple buy and hold investor.

If I thought we were close to the bottom, I would be buying indexes. Very selective action only at this time for me.

IP

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That’s a sensible approach.

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Jim’s major bottom detector did fire on September 29:

https://mungofitch.com/

“ This signal triggered on Sept 29, but not Sept 30, so (to the extent that it has any value) the US market is a buy now. The market might tumble some more, but it’s usually quite a bit higher a year after such a signal.”

I’d like to know what WEB is up to these days…

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Anyone know how often he updates that page? Would be interested in knowing if there were other signals over the last 18 days. Or anyone know the algorithm and I’ll see about implementing it myself? Thanks.

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Well, we’ve only got the one data point. I’d guess Jim will update it when he has something new to say. For now, the signal says the US market is a buy. Berkshire is also still in buy territory.

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I think he’s only posted once, so can’t generalize as to how frequent updates will be. But I asked him about his signal last week on one of the heavier down days. He said it has not triggered since Sept 29, and nothing in the last week would have caused it to trigger.

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With me having asked him the same after the heavy down open lately I am wondering how often on those days he received that same question from different people.

Posting it once would be less work. Hopefully that lemonfool.co.uk might become a new meeting place.

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Has Jim indicated he would post there?

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I sent him the link to it 1 or 2 days ago. I hope he might check it out. We’ll see.

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I’m pretty sure Mungo is done with the fool.

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I suspect you are correct, but would he post on other boards if they met his specifications (having to do with privacy)?

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I suspect you are correct, but would he post on other boards if they met his specifications (having to do with privacy)?

Sun Tzu on types of terrain:
#4 Ground which can be abandoned but is hard to re-occupy is called entangling ground.

Once you have lost your audience/members, it is almost impossible to get them back. Mungofitch is not the only valued poster who has been lost. Few if any of them are likely to return.

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I would hope he would. Guess we’ll see.

ges

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If I were him, and I had been considering cutting back on the time spent posting on interwebby bulletin boards, I would take the opportunity to quit that the Fool has presented and run with it. I suspect that we will not be hearing form Jim again, except and occasional post about new market bottom indicators on his site. At least, that’s what I would do.

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That sounds right. I think he may have been ready to move on, although…he was still quite a prolific poster on the old MF.

ges

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How do other people feel about averaging in from here? Personally I think it’s a sensible approach, even though I think that the S&P 500 index has further to fall. If I try to time the bottom, I am unlikely to buy within 10% of the bottom, so for me at least averaging in seems like a reasonable approach. Buy at $260/B-share (1.24x March 31st BV) and then buy more if the stock price falls. One caution: I always buy too early and sell too early.

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