It’s a dilemma that is so common.
Oh, how irrational is the market, how fickle it is. When the highest quality stocks are at unpalatable valuations, but those which are at more reasonable levels all seem to have something to be wary of. What is one to do?
Is Investing Mostly A Waiting Game?
The market is up, the market is down. So…?
It seems that recently, despite some declines, valuations generally are too high. Over 30 is distasteful. Higher is obscene. Lower begins the realm of possibilities, but 20 should really be the marker to pay adhere to. Unfortunately, any major company stock below 20 seems to be a signal of distress and caution. Looming lawsuits, sluggish demand, overhanging macro factors. What is an investor to do?
One possibility. Find the solid companies with low valuations. Recent hindrances are common in business, and in most cases eventually will be dealt with and business will improve. This is the expectation, anyway. Buying with low valuations is a major win, right?
Another possibility is to wait it out. Sit on my hands and wait for stability. This is seemingly attractive because I might be able to ignore recent turmoil. Unfortunately, I would perceive that when “stability” re-arrives, those low valuation stocks will be expensive again. “Stability” for an investor often means a bull market. Emotional comfort begets stability.
That means I likely need to revisit risk. Risk that brings long term success means investing despite some fears. At least it is for me. Dividend investing banks on the reassuring predictability of receiving dividends. But receiving dividends is only one part of the puzzle. Using dividends to increase my holdings by reinvesting is another goal. And if valuations are high, dividends do not bring as much increase as low valuations would.
Of course, low valuation in and of itself is not a sole measure of investing attractiveness. I need to consider other measures of the company as well, plus general economic conditions.
In a prior post, we discussed when to buy for maximum gain. It became apparent that in dividend investing with dividends reinvested, the best time to buy is before a decline. This is because we will accumulate more shares as prices decline as opposed to when prices increase. And as of the current date, although some prices are lower, there has not been a substantial enough decline to back up the truck.
All this means that I am not fully invested. I retain investable capital to deploy when major opportunities arise. I have taken positions in some lower valuations companies which have fallen out of (some) favor. But I am waiting for more “fun” to arrive. I trust myself to avoid being too trigger happy.
Valuations holding you back? Let me know here.
The illustration of granite veins in mica slate, Williamsburg, Massachusetts, 1828-1840, was by Orra White Hitchcock. It is one of 61 drawings done by Orra White Hitchcock for use in Professor Edward Hitchcock’s classes on geology and natural history. Illustration in the public domain. Courtesy, Archives & Special Collections at Amherst College.
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