In general, many of the world’s best investors follow a strategy of always investing in value stocks. Defined as companies which are trading at or near their intrinsic book value, by buying a company at the net value of the business’ assets, one can be reasonably assured that any sort of growth the company is able to provide will provide significant growth over and above the implied depressed stock price of the firm.
It is true that very few opportunities exist today that meet this criteria, and investors scraping the bottom of the barrel for Benjamin Graham style may be hard pressed to find even a handful of opportunities that would qualify as true value investments in the “50-cent dollar” sense of the word.
The temptation, therefore, for many investors is to avoid the digging and search for the best growth names available on a given exchange, banking on continued idiosyncratic growth within said firm, continued market growth and economic improvement, and growth within the sector the underlying firm operates in.
Such growth assumptions are, in my opinion, more dangerous today than perhaps ever before, and I would argue that investors looking to be truly conservative and prudent in today’s sky-high valuation environment will want to go much heavier value stocks as compared to growth stocks today.
Preparing for a market selloff can be a difficult thing to do, as many investors will inevitably feel that they are leaving money on the table by not jumping at what may appear to be excellent growth opportunities, however, during a market decline, it has been proven that value stocks perform exponentially better than growth stocks – a prudent investor will keep this in mind when picking allocations.
Invest Wisely, my friends.
