Only When The Tide Goes Out

Periods in which equity markets are in a state of upheaval can be a wonderful opportunity to help you build long-term wealth. The challenge some investors have, however, is that they focus on investing when all is well but panic when market conditions take a turn for the worse.

Focus on investing exclusively in great companies and keep your wits about you. Don't panic.


Every morning when I am not out of town I make a point exercising at the gym. One thing that amazes me about our local gym is the number of television monitors!

I pay very little attention to what appears on these monitors because I have absolutely no interest in the broadcasted material. Over the last few months, however, I have noticed some monitors are tuned to one of the more popular business news channels.

Fortunately the volume is set where you can only hear the commentary if you plug your earphones to some of the equipment. I say ‘fortunately’ because on the rare occasion when I have listened to these particular programs I have come away with the opinion that several host(s) have neglected to take their daily dose of Ritalin.

While the material may be entertaining I have found the focus tends to be short-term in nature. I completely agree that what will/may impact a company in the short-term is important. Neglect the short-term and a company may have no mid- and long-term! As an investor, however, I don’t want to get bogged down in the minutiae and prefer to focus on senior management’s mid- and long-term plans.

Back to the gym….

This morning I noticed a lot of ‘red’ numbers (drop in stock price) flashing across the monitors. This piqued my interest because over the last few months I have, for the vast majority of the time, seen ’green’ numbers (increase in stock price).

Upon returning home from the gym I checked to see what was happening in North American markets and a smile crossed my face.

Fair / Attractive Valuation

I strongly suspect anybody reading this article wants to get a deal, or at the very least pay a ‘fair price’. Often times, however, this mindset is lost when it comes to investing.

The vast majority of us work extremely hard so it strikes me as asinine not to be frugal when investing our hard-earned money. Many people shop around for a great deal when seeking to purchase a depreciable asset. Imagine spending time and energy to get the best deal for something that will erode your personal wealth but spending little to no time to find something that has the potential to augment your personal wealth.

It is certainly not my place to tell people what to do. I am merely suggesting that some people need to change their thinking when it comes to investing.

When you view investing from a business ownership perspective you look to invest in companies which are undervalued, or at the very least, fairly valued.

You certainly don’t shop for a vehicle where the price tag has been amended to reflect a higher price. The same applies when investing in a company! Many investors, however, will not invest in a great company when shares are trading at $110 but they will buy shares in the very same company at $130 even though the underlying fundamentals and growth projections have not changed. I know this sounds ludicrous but this happens!

Sometimes Doing Nothing Is Best

In my ongoing effort to become a more disciplined investor I would like to think my patience level has improved in recent years; patience has certainly served Buffett, Munger, Pabrai, and other great investors very well. In fact, Pabrai has indicated:

‘My biggest challenge is to avoid doing anything to this terrific portfolio for several years. If I can just sit on my ass and do nothing for a few years, I think we’ll all be very well off. I am pretty good at doing nothing. So, that is the plan. Unless spectacular opportunities show up, there will be a few tweaks around the edges, but not much beyond that.’

Over the last few months as the North American equity markets have been on a tear I have endeavored to be disciplined like Pabrai. I have made very limited purchases and I have exited 2 non-core positions; look at my 2019 articles.

Using Conservative Option Strategies

Most of my investment activity has been directed toward the use of conservative option strategies where I think there is a disconnect between the underlying fundamentals of the company and the company’s share price.

MSCI Inc. (MSCI) is one example. In this article I recommended subscribers look at a ‘bear call spread’ in which the maximum profit would be attained if the share price dropped below $210.When I wrote the article shares were trading at $226.93. Many investors may not have been interested in initiating this trade given that the breakeven level was ~$10/share lower than the current market price.

Fast forward to the May 13th market close and I see MSCI is trading at $215.50.

The options I recommended expire September 20th and much can happen between now and then. In my opinion, however, a price below $210 does not seem to be totally out of the realm of possibility.

Where I have viewed shares to be undervalued or fairly valued I have indicated my intent to acquire shares.

In my May 12th Becton, Dickinson and Company (BDX) article I indicated that I viewed shares as being attractively valued. On May 13th I acquired additional shares at $225.05 and hold same in an account for which I do not disclose details for confidentiality reasons.

Final Thoughts

It is days like today when I think of Warren Buffett’s wise words:

‘Only when the tide goes out do you discover who's been swimming naked.’

Look at these statistics! I think there might be a few ‘naked’ investors out there.

Hopefully the current market conditions appeal to you because you have kept some ‘powder dry’ which you can deploy as your target companies become more attractively valued. I have a few target companies on my ‘watch list’ and am cautiously optimistic I will be able to share some ‘buy’ recommendations with you in the not too distant future.

I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long BDX and hold a bear call spread on MSCI.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.