I have always like to consider myself a value investor as I relish in buying assets on the cheap and feel silly buying assets that have already been bid up. In the domestic equities market this has presented some tremendous opportunities as several companies’ shares are trading at 5 year lows. Of course there may be some very good fundamental reasons why future earnings from these companies will be lower and maybe even non-existent. I am sure buggy whip shares were on the decline when Ford was cranking out its first automobiles.
The question now is whether companies like General Motors, Ford or Playboy Enterprises can return to profitability without a restructuring which leaves equity holders broke. I believe there can be a return to profitability which will come on the heels of private equity players having a second coming with cheap money flooding the market. Deals became less profitable as interest rates rose and the low hanging fruit had already been harvested. That environment is going to change as equity players who kept money on the bench and conglomerates looking to diversify will scavenge up some of these holdings to exploit obvious synergies.
My worry is whether I can walk the walk. It is quite easy to have a gut feel. It is quite another to buy into a declining market, especially with a recession looming it is easy to expect equity prices to drop another 10% to 20%. Why buy now?