Miserable Mr Market

I see Mr Market is still feeling depressed at the moment, and undoubtedly he will create some bargains. However, quite a few company share prices that I have on my monitor seem resilient despite the recent sell-off. Early days yet though and Mr Market may get even more depressed and start handing out cheap shares on a plate. You can never predict market tops or bottoms with any confidence, and subsequent rises and falls generally take you by surprise. There's a great quote from Peter Lynch that I've included at the end of this blog.

In my opinion trying to second guess the market is a sure way to lose money, and as a stock picker I think the best you can do is to time your buying activity when you believe that the stock is cheap. Of course in markets like these there is always the risk that the stock gets cheaper still, so if you have the cash and are confident in your valuation methods then why not just buy some more. If you've used all your cash then just wait patiently for the real value to be recognised by the market.

Here's just one personal example. In 2002 I bought shares in Clarkson for around £2. The price looked a snip for a  low p/e, debt free company with a healthy balance sheet paying what looked like a safe 7% dividend. However, Mr market got very depressed and decided that he would sell Clarkson for around £1.30 a few weeks later. If you take a look at Clarkson today you will see that the SP is around £11.35, and has been over £13. In other words the shares were cheap at £2, it's just that I didn't get in at the very bottom of the range, which is almost impossible to do on a regular basis due to the often irrational Mr Market and his moods.

At the time I was a relatively inexperienced investor, and I eventually sold my holding for around a 75% profit . Not bad, but given the capital appreciation and dividend rises over the years since, it would have been nice to just hold on for a while longer.

Anyway, here's Lynch's thought's about market timing (bear in mind that he's one of the best investors ever achieving a compound rate of 29.2% per annum.

"Every year I talk to the executives of a thousand companies, and I can't avoid hearing from the various gold bugs, interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers. Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack......All the major advances and declines have been surprises to me"