More on value investing

When the market is plunging, most stocks will lose in prices. Hence, it is not a good time to buy stocks.

The best time to buy stocks is when the market is recovering. I call it Early Recovery as described in my articles on market timing. I have about 80% return in my largest taxable account in 2009. During this stage, the average P/E is high but the PEG is improving.

Similar in Early Recovery of 2000 market crash, I had good results but I did not keep good records. At that time I expected the market would recover in two years. I evaluated stocks that had enough cash to last for the two years.

From about Dec. 15, 2018 to early January, 2019, I made over 50% in one month on quite a number of stocks. I bought stocks that had lost about 50% but were profitable. Dec. had the temporary dip. It is a perfect match for the screen and the market fluctuation to my advantage.

The following is my recommendation during a sideways market. First, we want to avoid companies that would bankrupt. Skip companies that have negative earnings especially those with high debts unless they have good reasons. They may have a new drug, a new product and/or are settling a major lawsuit. Check out the Free Cash Flow / Share and Insider Transactions to start.

The most popular P/E may not tell the entire story. EV/EBITDA from Yahoo!Finance takes debt and cash into consideration. In case they are not available, use Pow P/E described in this book to estimate it.

Check out free evaluations from several web sites described in this book together with Finviz.com, Seeking Alpha and Fidelity.com.

Need patience as you are swimming against the tide. It may take a year or two for the market to recognize the true value. Even so, I have value stocks that stay low forever. They may be ‘value traps’. You may want to enter position when the stock starts moving up as evidenced by the positive SMA-20% or SMA-50% in Finviz.com.

As in life there is no guarantee that it will increase in value. That’s why we need to diversify (i.e. not putting all eggs in one basket).  However, the chance of appreciation is substantially increased if you do all the homework described.