John Authers writes in the Financial Times (free link here) that value investors remain largely on the sidelines, even with recent market turmoil. As someone looking at some financial stocks to buy, I find this bit noteworthy:
At first glance, it looks as though financial stocks represent a good value opportunity. They are usually valued by their multiple of book value (the total value of the assets on their books, minus their liabilities). On this basis, they are their cheapest in more than a decade.
But there is no margin of safety in financial stocks. The low multiple to book value is not - as would usually be the case - because of pessimism about future earnings prospects.
Rather, it is because nobody quite believes the current stated book values. With subprime defaults running high, and with financial services groups around the world discovering they cannot put a value on assets they had thought were safe, many may have to mark down the assets on their balance sheets. That generates uncertainty and it does not offer much margin of safety.
Of course, what Authers says may well be true generally, but I'm a stock picker so I'm looking at specific companies. I could always uncover a nugget or two with his larger point still being on the money.
You've doubtless heard the old investment saying to buy "when there's blood in the streets." It will be interesting to see how much more blood gets spilled in the weeks and months ahead.
there are folks saying that this credit crunch is / could be worse than dotcom bubble.
I remember 2001 when all the tech stocks felt like "value".. only to be further crushed. The real value entry points were available only in 2002 / 03 in tech stocks!
Posted by: five_whys | September 08, 2007 at 11:40 PM
five: Good point. No one knows what's going to happen but we could always see a second leg downward.
Posted by: John | September 10, 2007 at 09:47 PM