To nibble or to wait?

In early May I began nibbling on a few good companies, and I continue to do so. That’s been a mistake. My plan before the correction had been to wait until after the bottom in the broad market to buy, but I didn’t follow my plan.

After the 2008 correction I analyzed my purchases and found that I would have been better off waiting to buy until the broad market had risen 10% off of its March 2009 bottom. I had nibbled in 2008, losing money. Fortunately in April 2009 I piled in, principally in BRKB, after a >10% rise off of the March 2009 bottom in the S&P, and that worked out very well.

I doubt that I’ve learned my lesson, though. If prices of good companies continue to fall, I’ll probably keep nibbling, even though I think that the broad market has further to fall, dragging good, attractively priced companies down with it. At a P/E of 20 the S&P is still overvalued.

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Nibble while waiting.

Over a longer period of 3+ years the odds are in your favor you will have ‘nibbled in’ satisfactorily.

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In early May I began nibbling on a few good companies, and I continue to do so. That’s been a
mistake. My plan before the correction had been to wait until after the bottom in the broad market to buy, but I didn’t follow my plan.

After the 2008 correction I analyzed my purchases and found that I would have been better off waiting to buy until the broad market had risen 10% off of its March 2009 bottom. I had nibbled in 2008, losing money.

Just a thought: did you take the right lesson from that experience?

Are you really that able to predict the market?
I’m not, and (like most) I think I’m much better than average.

If the things you’re nibbling on are expected to do well over 5 years given their valuation levels, why do you care that they were cheaper 3 months into the process?
Nibble away!

Another possible interpretation of your previous experience:
You bought at a reasonable price.
The price went down some more, so you FEEL like you made a mistake.
But you didn’t.

Waiting till “after the bottom” won’t work, unless you can see the future.
The market rallied 27% from November 2008 till January 2009—then plummeted again to even lower levels.
So, even a very good test of “after the bottom” (end November) would have had you purchasing things that were at vastly lower prices in March.

Have a gander at Mr Buffett’s “Buy American, I am” op-ed piece October 16 2008.
Check the prices that day.
Was it a good time to buy? Yes, given subsequent returns over any time frame longer than about seven months.
Did the market go a lot lower for a short while? Sure. But nobody knew that for sure, no matter what they said.
Some observers were certain and ended up being right, but that doesn’t mean they knew the future.

I’ve been a buyer lately.
I actually believe the market, including the price of Berkshire, will be quite a bit lower at some point in the next year with high probability.
And I even have a bunch of statistical models to add a veneer of plausibility to that feeling.
But I’m a buyer now because I like the price/value ratios of the things I’m buying, given their respective tail risks.
If good investing is about keeping your eye on the ball, that’s the ball.

Jim

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“The market timers’ ‘Hall of Fame’ is an empty room. I never have the faintest idea what the stock market is going to do in the next six months, or the next year or the next two days…if I knew what was going to happen in 1974, I wouldn’t have bought any stocks in 1973. I bought a lot of stocks in 1973 because I thought they were at good prices. Just like I’m buying stocks now.”

Warren Buffett, March 2008

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My thinking is to estimate how much cash I’m likely to use, and aim to use half while prices are still falling and the other half with some automatic rule at/after the bottom. I’m not sure making lots of separate trades has much advantage, so that comes down to a couple of trades (in each stock / index), one when value looks good but price may still be falling, and another when some indicator fires; Jim’s major indicator / price above some sma / price above level 6 months ago / whatever.

Using 3 or 4 trades would spread the risk of being wrong a bit more, but in practice I’m likely to be buying 2 or 3 different stocks and also 2 or 3 different indexes, and the timing will vary between these anyway, so I’m more interested in keeping the number of trades down.

SA

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You know what they call people who buy at the bottom…?

Liars.

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If you let value guide purchase decisions - you tend to end up being a buyer near or at the bottom often… I’ve done it over the years myself… In that sense - its not market timing… it just appears that way because the values are most compelling at the bottom… I’ve read comments here which nonetheless hint at a huge problem - as Berkshire becomes cheaper - some have commented they are more fearful now… this is when the allegory of Mr. Market demonstrates clearly its importance to the thinking of a great investor. and one of the reasons it is a chapter from Graham’s book that WEB often refers to…

in terms of liars - well the markets are full of those… that’s one commodity nobody is short of.

:wink:

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