Retail investors often read investment articles for their investment ideas. However, sometimes the best investment idea is no investment at all. As the market continues to remain strong, the pool of quality investment opportunities naturally declines. Investors used to action will not find such an environment friendly to operate in. On the other hand, the value-seeking investor understands that short periods of excellent buying opportunities are often followed by longer periods of inactivity.
IN PICTURES: Eight Ways To Survive A Market Downturn
Your Own Worst Enemy
French mathematician Blaise Pascal observed "all men's miseries derive from not being able to sit in a quiet room alone." Indeed this observation hits the bulls eye when it comes to reasons why many investors make mistakes in investing. Emotion, and the need for immediate active results, often lend themselves to poor investment decisions. Looking back at 2008 and the many investors who failed to make it alive, investors will benefit from the quip, "to finish first, you must first finish." (For related reading, check out Removing The Barriers To Successful Investing.)
A Subtle Difference
Indeed while the best gains are off the table for now, sitting still does not necessarily mean being 100% in cash. Canadian commodity giant Teck Resources (NYSE:TCK) had shares that were in the low teens, a few months back. Today the shares sit around $45, and while they may continue to go higher, now is not the time to make a move. Despite trading at 13-times earnings and having a first rate management team, the best opportunity existed last year.
So, while triple-digit gains may be gone for know, investors can be patient with names like Vodafone (NYSE:VOD), a global wireless communications provider. The shares yield nearly 6% and the company owns 45% of Verizon Wireless, the largest wireless provider in the U.S. Currently, Vodafone gets no dividend from VW because its majority owner Verizon Communications (NYSE:VZ) is requiring VW to use its cash to pay down debt it owes. Yet, once this debt is repaid later this year, an opportunity exists for Vodafone to begin receiving a nice infusion of dividend cash payments. (For more, see Dividend Yield For The Downturn.)
Tejon Ranch (NYSE:TRC) is also a company one can sit still on. This company owns some of California's most pristine lands, most of which have been allocated for environmental preservation. However, in exchange Tejon has a small slice of land that has been approved for development without the customary environmental roadblocks. It a comfortable business to own, because it is debt free, a huge advantage for a land company without a way to service such debt.
The Bottom Line
While investment opportunities can always be found, the key is understand when the opportunities are ample, and when the well is dry. For the value-seeking investor, buying at absolute bottoms and selling at the top is not the key to investment success. Instead its buying assets below intrinsic value, and when no such assets can be bought, then buy nothing. (For more, see The Successful Investment Journey.)
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