When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.
Most bull markets have well-defined characteristics. These include:
- Price levels are historically high.
- Price to earnings ratios are high.
- Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
- Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
- There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”
THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):
- THRIVING IN EVERY MARKET
- MR. MARKET
- SUITABLE SECURITIES AT SUITABLE PRICES
- PAYING RESPECT TO THE MARKET
- TIMING VERSUS PRICING
- BELIEVING A BULL MARKET
- THE PAUSE AT THE TOP OF THE ROLLER COASTER
- MAKING FRIENDS WITH A BEAR
- BARGAINS AT THE BOTTOM
- SIGNS AT THE BOTTOM
- BUYING TIME
- IF YOU ABSOLUTELY MUST PLAY THE HORSES