Be Constructive While Doing Nothing

Many investors often assume that by not buying or selling in wildly moving markets, they are somehow falling behind other investors. Unless you are the type that likes to buy during up markets and sell during down markets, sometimes the best thing to do is to sit still and do nothing at all.

IN PICTURES: 10 Tips For The Successful Long-Term Investor

Man's Misery
One of my favorite quotes is that of French mathematician Blaise Pascal who remarked, "All men's miseries derive from not being able to sit in a quiet room alone." When markets are surging or tanking, the human urge is to act in one way or another. Instead, investment activity should be based on price and value: Buying when market prices are below intrinsic values and selling when valuations are at premiums to business value. Yet by sitting still, investors feel they are doing nothing.

Expanding the Idea List
Today's markets are in speculative territory. Valuations have gone beyond business value. Businesses like Lowe's (NYSE:LOW) are squeezing every bit of operating efficiency and barely growing sales. This week Lowe's reported higher profits on nearly flat sales volume. Lowe's is a fantastic company, and its results should be indicative of the tough times in today's economy. After a weak 2009, U.S. companies' quarterly results look "good" because of comparisons with weak quarters. Going forward, however, the comparisons will start to get tougher and today's valuations become hard to justify over the long run.

So while I wait for better opportunities, I am happy finding companies that I would love to own at better valuations. Teck Resources (NYSE:TCK) is one name. This Canadian commodity giant looks attractive at 15 times earnings. But with commodity prices at high levels, so is the stock price. I'm not a big fan of buying into sectors where underlying prices are nearing peaks. But I would welcome to opportunity to pick Teck after a correction. Florida real estate and land company St. Joe (NYSE:JOE) is one to watch. Shares are down over 30% since David Einhorn unleashed his short thesis on the company. At $18, they trade near a 52-week low but could get lower and provide an opportunity to own land at a very good price.

Other names on my list include mining company Terex (NYSE:TEX) which is turning itself around from a two-year industry slump. Shares have rebounded sharply from the low price of under $10 a share in 2008. At $24, it's not an overvalued stock but I'd prefer a more attractive entry point.

The Bottom Line
It's not fun to wait and do nothing when markets are moving up. But the long-term benefits of waiting to invest when markets pullback are well worth the effort. (For related reading, take a look at Finding Solid Buy-And-Hold Stocks.)

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