Some market commentators are issuing notes to stimulate investors to start buying shares at these ‘ridiculously’ low levels.
Instead, when stock markets are as bearish as they currently are, and your cash supply may be limited, you certainly should become a lot choosier on what, when, and at what price to buy shares.
Share prices can always go lower, much lower in fact, even if nothing is particularly wrong with a particular company.
As an investor, rather than a speculator or trader of stocks and shares, I very much keep in mind Warren Buffet’s wise advice: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”.
That kind of thinking should immediately focus the mind on considering to buy high quality companies’ shares, but only when they’re cheap . . . real cheap.
When are shares really cheap?
As a Dividend Income Investor, I would say shares are really ‘cheap’ when high quality dividend paying companies’ share prices are historically undervalued.
The flipside of this is that their dividend yields are ‘high’ based on business activities which support increasing earnings, at least, in most situations which also allow for sustainable dividend yields that can even match annual inflation rate.
Unfortunately, based on our proprietary valuation screens, there are still not that many FTSE100 companies that fit our bill. In fact, our research indicate that you can count them on less than two hands.
Is it not yet time to buy some bargains?
Some people are of the opinion that with the FTSE100 on a forecast P/E of less than nine, now it’s definitely time to be buying some “bargains”. Some people say that this falling market is offering excellent opportunities. Others are of the opinion that we’re even past the worst.
I am afraid I am not of that opinion!
So far, the FTSE100 has gone down on average 1% almost on a daily basis the last few sessions while some pundits are now predicting that a drop to at least 4800 is a distinct possibility in the next few weeks, in particular if headlines continue such as:
- “Germany suffers disaster at bond auction”
- “Spanish and Italian bond yields again around or above 7%”
- “France’s AAA credit rating under threat”
- “Merkel blocking Eurobond solution” …
