Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
The stock market, it's fair to say, is in an uncertain mood. And, as in the early days of 2009, just before the market's nadir, daily items of news are having a disproportionate effect on sentiment.
The economy, Greece, banking downgrades, American purchasing and housing surveys -- you name it, and stock prices are reacting, oscillating wildly on euphoria and gloom.
At such times, it's tempting to sit it out, and wait for calmer times before putting more money into market. But that, I think, would be a mistake.
Let's start with why the market is reacting to newsflow, and not shrugging it off. Simply put, investors today are far more pessimistic than they were earlier in the year, when the FTSE 100 (UKX) was within a few points of 6,000.
And pessimistic markets, in short, are buying opportunities. As Benjamin Graham put it:"Buy when most people -- including experts -- are pessimistic, and sell when they are actively optimistic."Or, to cite that other well-known super-investor, Warren Buffett:"Be fearful when others are greedy, and be greedy when others are fearful."
Can the market get more pessimistic still? Undoubtedly. Can people get even more fearful? Of course. But with the market down 10-15%, you can buy today the same shares that you were buying just weeks ago -- but significantly more cheaply.
And as Warren Buffett -- again! -- so memorably put it in a thoughtful article in Fortune magazine a few years back:
"When hamburgers go down in price, we sing the Hallelujah Chorus in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying ‑‑ except stocks. When stocks go down and you can get more for your money, people don't like them any more."
And unquestionably, the stock market's hamburgers have just gone down in price. AstraZeneca (LSE: AZN), Aviva (LSE: AV), BT (LSE: BT-A), BAE Systems (LSE: BA), Barclays (LSE: BARC) andLloyds Banking Group (LSE: LLOY) -- undeniably, Britain's blue chips have gone on sale.
That said, it's possible to view today's market in a very different light. Namely, this way: if you don't like shares at today's prices, what do you like?
Cash? Real returns are either negative or zero -- and the next move in interest rates is likely to be downwards. Property? You're braver than I am. Gilts? Every bubble has to burst one day -- and we're surely in a gilt bubble. And so on.
On the other hand, decent blue chips are on yields of 5% or so, delivering dividend growth of 5-10%, and offer capital growth into the bargain.
And, what's more, at very reasonable prices. The FTSE 100's price-to-earnings (P/E) ratio yesterday was 9.88, compared to 10 years ago when it was 19.88 -- and that, in short, is one helluva difference in valuation.
Frankly, there's not much point in having a watch list if all you do is, well, watch it.
Or, to put it another way:"When shares on my watch list scream 'bargain', I buy them. What do youdo, Sir?," as master investor and economist John Maynard Keynes so memorably didn't quite say.
And with those sentiments in mind, there's one share in particular that I've been loading up on in recent times, having almost doubled my holding this year. What's more, I'll be buying still more of it in mid-July, when I've banked my dividends from Sainsbury (LSE: SBRY), Marks & Spencer (LSE: MKS),GlaxoSmithKline (LSE: GSK) and BP (LSE: BP), and found some more spare cash.