Now is the time to PANIC


I’ll skip the market commentary as you’ve probably read it somewhere.

This morning I find out my portfolio is -4%. Very deep in the red. To say this month has been dreadful is an understatement but this is the perfect time to take a gut check to see whether you have conviction in your stock picks or want to run for the hills.


I’ll skip the market commentary as you’ve probably read it somewhere.

This morning I find out my portfolio is -4%. Very deep in the red. To say this month has been dreadful is an understatement but this is the perfect time to take a gut check to see whether you have conviction in your stock picks or want to run for the hills.

In the past few days SUNH dropped 50% due to news of medicare spending cuts. ARO dropped a further 24% today on weak retail sales as consumers cut back on spending. Include all the other declines and it adds up, BUT…

Back in 2009, I clearly remember telling myself one thing while I continued to add or buy new positions.

You have to be in it to win it.

You shouldn’t be investing with money you need immediately anyways so if you are at least mid to long term focused, the time is getting ripe to make some big bold moves should the economy continue to flounder and Europe worries continue to spread.

Now is the time to focus on value instead of price. This is no time to be friends with your emotions.

Now Get Panicking!

  • Panic if you don’t have a shopping list ready
  • Panic if you don’t have enough cash
  • Panic if you are panicking

  • Got some cash sitting on the sidelines, got my shopping list and my price targets and starting to see some dream companies begin to flirt with my “I’m-not-very-smart-so-I’ll-give-a-crazy-low-target-price” goals. Bring on that sweet sweet red.

  • I have been shopping. It is frustrating when you grab value and then get hit the next day… I am comfortable with the business and the health of the cash flow and dividends that I am getting. I am reinvesting dividends so I will be still buying low even if I am not cleaning out my cash reserves. Good article to remind value investors to curb our panic and focus on the future and not next month!

  • silverpill23

    Right there with you Jae. My deepest red today: ATPG.

  • What are some of your dream companies?
    I have the following on my list.
    DLB
    EXPE
    GGP
    BOLT
    UFPT
    GLUU

    going through more of my past stocks to see which I would be inclined to add.

  • @ WealthSavant,

    I feel you. As value investors, we tend to enter early and leave early. Our conservative nature. But in the grand scheme of things, as Phil Fisher says, don’t quibble over cents. I’ve lost more opportunities by trying to save a few bucks on the entry side. Anchoring bias then kicks in and its extremely difficult to buy at a higher price.

  • Peter

    I bot some ARO today, along with some at-the-money LEAPs. There was nothing about their results that justified such a violent selloff.

  • Sung

    Hi Jae, Regarding your dream company being Dolby (DLB) It was at around $40/Share when I started researching it. One thing I thing I really consider when choosing a potential investment is its management. What I really didn’t like about DLB was all those stock options to Ray Dolby. Also special perks of using company facilities for personal use 10 times a year. I believe the company rents its offices from Ray Dolby as well. Not to mention all the voting rights he owns. Even though, he is the famous person who pretty much invented the technology and brand Dolby, I still feel kinda iffy as a shareholder part of my investment goes to the Dolby Family. I wouldn’t mind being part of that family.

  • I’m watching BOLT for sure. I agree with your $10-$11 range.

    BAM is one of my dream holdings that falls under the “buy a great business at a fair price” as far as I’m concerned. Hoping for it to be in the $24-$26 range

    RIMM is getting to that “seriously!?” point. Wrote about it in the forum, but if it goes south of $21 and I don’t get it, my wife will kill me.

    And from your list UFPT looks interesting. I guess I know what I’m doing today!

  • @ Jae
    Jae if you’re returning to your screens to looks for value, the one that immediately jumps out to me is MU from the FCF cow screen. That CROIC alone…

  • Pingback: It’s The End of The World As We Know It (and I Feel Fine)’s Friday News & Notes | The Margin of Safety Investor()

  • somrh

    Well, it looks like DLB is on sale with a huge drop today. But I think patience is going to be key here because it’s not over with.

    Greece will default (everyone knows it) and the big open question is how many CDS were written on Greek debt. That will have an impact on Europe…. but not as bad as Spain’s debt problems.

    The US has its own set of problems. Ignoring the public debt (everyone already talks about this) private debt is still at levels higher than the Great Depression. The latter half of the 20th century was fueled by (1) lower debt levels (meaning more money to consume) and (2) increasing debt levels (meaning more money to consume).

    We don’t really have those options any more. “Consumers” are tapped out. They already have too much debt (all of which requires maintenance) and are reluctant to take on more (I hope at the very least.) So we are amidst what John Mauldin calls a “deleveraging recession” (kind of like the one we experienced during the Great Depression… except our debt levels are worse now).

    For a long, but good, video, check out John Mauldin – The End Game:
    http://www.youtube.com/watch?v=4mn4ujPLKvA

  • Carter

    My quick analysis:

    I am already in POL and CLF. I picked up both of these almost a month ago because I still felt they were undervalued and am thinking about pouring in some more cash in the next few days. They both have incredibly low P/B and P/E ratios, as well as good financials. I pulled them from the Graham checklist screener.

    I am planning on adding BOLT as well thanks to Jae’s attention. Also thinking of BKI – Good financials, as well as excellent Piotrski score. Does anybody have other thoughts on these that I may be missing?

  • DLB dropped 20% on news that it wont be included in Windows 8.
    Will have to see how material this news is.

    @ Graeme,
    I’m still not sure about RIMM. Cheap just isn’t going to cut it now. It’s a matter of whether price increases to meet value, or value decreases to meet price.

    I look at MU before, but passed on it. Wasn’t the easiest company for me to get my head around.

  • @ somrh,
    your comment got stuck in the spam folder, so I’m seeing it now.

    Funny how the day before I mention DLB, it takes a big drop. DLB wont be included in Win8. How much of an affect that has will have to be seen, and any bad news in the last few trading days means disaster for the company stock price as sellers sell based on fear.

    It will take a while before I see my DLB in the red again, and I wont be adding just yet. There is still more to go I believe.

  • @Jjae
    Yeah, spent a good part of yesterday looking at MU and I agree that it’s complicated and has no consistency to their balance sheet year over year.
    Now that the US has been downgraded this week coming up is probably going to be over-selling mania. I’ll watch the craziness and wait for some no doubt plays that are sure to come with people selling like crazy.

  • @Jae
    Yeah, spent a good part of yesterday looking at MU and I agree that it’s complicated and has no consistency to their balance sheet year over year.
    Now that the US has been downgraded this week coming up is probably going to be over-selling mania. I’ll watch the craziness and wait for some no doubt plays that are sure to come with people selling like crazy.

  • Jae,

    Good post. I’m in Seongnam now collecting some cash and waiting to pounce. My list are made of various promising looking net nets. Decided to go with a fairly mechanical (read: quant) strategy to take WB up on his advice, “When dumb money realizes its limitations is stops being dumb money.” …and there are few better quant strategies than net nets. It’s interesting though how a person can know something to be true (lower prices = better long term returns) but have the opposite emotional reaction to it. I guess I’m panicking over #3. haha

  • Derek

    Jae, what do you see at the catalyst to turn markets upwards again? Do you think Bernanke will have a surprise in store on Tuesday, or is it too soon for the Fed to intervene? Regardless, some are arguing the law of diminishing returns as QE III will not be on the level of QE I or QE II.

    With the limitations on stimulus contained in the debt ceiling deal, it seems the government has fewer options. Then there’s the S&P downgrade of U.S. debt late Friday and the never-ending Euro jitters.

    As bleak as all this seems, corporate America is awash in cash, accumulating capital from impressive quarterly earnings, sometimes hitting record high profits.

    I’m down to about 10 per cent cash. Like everyone else, I’m tempted by the increasing bargains on the markets. On Friday my 85 cent bid for Dacha Strategic Metals filled. It closed at 87. That’s great for now, but it may be 75 cents by the close on Monday.

    I’d love to invest my last 10 per cent near the bottom, but who knows if the bottom comes next week or six months from now. It’s going to be interesting…

  • Simon

    I fully respect value investing philosophy but imop if we are entering a renewed period of volatility and uncertainty why not lighten up? I guess the chances of a government rescue and cash de-basement of some sort are high enough. Nevertheless I would not buy more just now and I would look to raise cash.

  • jsarasin

    Last night I had this dream a company was selling for:

    Under its pure cash value per share
    Basically no debt
    Making a profit
    Huge new product coming soon with huge popularity
    Management working solely for shareholder value

    Yes you guessed it. Buy GRVY.

  • (Interesting spambot prevention you’ve got there… ;) )

    Just want to say thank you for this blog. You’ve got a very good heart and the information here is very decent and kind and helpful.

    I also want to add that jsarasin’s comment, previous to mine, seems interesting as well. I’m no expert but it’s looking like nothing but uphill for that company in a field that seems to never backslide if the product is top notch.

    Best wishes to all and thanks again,
    Sam

  • Zach

    I had read that these latest drops in the market were coming and knowing that in spite of what much of the media was saying, we are not in a recovering economy. So, pulled all my money out of stocks and bought precious metals while I wait for the markets as a whole to drop or until I can have confidence in the economy as a whole. In other words, my companies will outperform the market through the normal ups and downs but in these times when people are truly panicking, everything goes down; Undervalued stocks become even more undervalued. Even precious metals can and did go down in 2008, but unlike my stocks they quickly recovered as uncertainty lingered. Now that precious metals have returned to their primary purpose of preserving wealth and hedging against uncertainty, they actually go up when we get the big drops. I plan to move back into my stocks when I think we’ve seen some kind of bottom but I think it was Seth Klarman said that we have to remember that our first goal is to not loose money. I would not hold my stocks in an economy like this. I will eventually move back into stocks but I see no reason to loose all my profits just because it’s a good deal. My mom always told me, “Just because something is on sale and a good deal doesn’t mean you have to buy it. You can save your money.”

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