One of the most common questions I get is “is the stock market or real estate market or Pez dispenser market at the bottom?” Folks wanting to get the absolute rock bottom price on their buys.
I’m the wrong person to ask.
I’ve never, ever bought anything at its lowest price. It is pretty much guaranteed that the day after I buy a stock, the price drops like a lead balloon (resisting a made in China lead balloon joke). One of my buddies asks me what I’m buying so he can go out and short a stock. That’s how good I am at picking the bottom.
There are two lessons from this. One is that just because a person is a good investor doesn’t mean she’s good at every aspect of investing. The other is that you don’t have to buy at the bottom to do well at investing.
Lucky for me.
What I do is look for bargains by my own definition (using book value, 10 year discounted cash flow, and then adjusting for any changes in profitability I think will happen). When the company stock is good value, I buy. If the price drops and nothing fundamentally has changed, I buy more.
But, I also get asked, if the price drops, doesn’t that mean there’s something wrong with the stock?
Perhaps. Or it could be, in the case of my little ice company, that the investors don’t want what the management wants. My ice company has a healthy yield so many of the investors hold the stock for income. When the company does something “crazy” like buy up more ice companies (so they can capture cost savings and have more control over pricing), the investors get upset. They’d rather be paid out the money and the price drops (for a couple days). Me? I bought it for growth. I’m lovin’ that the company is gradually cornering the ice market. So when the price drops, I buy more.