Mr. Market is losing his marbles. He doesn’t seem to know what way to go. Go up. go down. go down, go up….. I hope he gets better soon since October is just around the corner and we all know how difficult October can be!
This is a great time to be sure you have a margin of safety. A margin of safety means you have elements in your security purchases that serve to protect you from the downside. One simple aspect of margin of safety is owning a company at prices that are a fraction of the current prices. Other aspects are mostly positive financial fundamentals over the long term and how the company performed fundamentally during economic downturns.
In these nerve racking times, assessing a company’s fundamental financial metrics is essential. This means not basing your assessment of a company solely on the stock market action of the security. The market can be significantly influenced by behavioral biases such the erratic behavior of Mr. Market.
The ups and downs of the market can be used effectively by investors to buy securities that have been undervalued by the market, but significant keys lie awaiting for you to dig them out of the company’s financial fundamentals. This is the essence of value investing.
Remember that you seldom, if ever, clamor to buy most items when the price goes up and you load up on those items when the price spikes down. The odd thing about the market is that for many it operates in exactly the reverse fashion. People want to buy when prices go up and don’t buy when prices go down! This is clearly a warped sense of reality. Maybe there is a black hole nearby that’s warping reality!
So as Mr. Market turns dower and throws babies out with the bathwater, keep your security shopping list close by. You have to be patient in this world of immediacy but that patience can pay big dividends!
