When making investment decisions, I focus much more on whether a business is high quality than on its valuation. However, I don’t think this means that valuations should be ignored entirely. Sometimes even high quality businesses become overvalued. In practice I am often put off buying businesses where the valuation doesn’t seem to be justified by the growth prospects. But I’ve found this very hard to judge – am I getting it right? Continue reading
It’s been a very positive start to 2019 for stock markets on both sides of the pond. There has been a fairly relentless rise since the Christmas Eve low. It’s starting to feel like the worst of the correction may be behind us. However, in the short term we seem to be near a point of inflection, with the US indices bouncing around near the 200 day moving averages and the FTSE not far behind. As ever, it could go either way from here. Either way, I’m feeling vindicated in my decision to remain fully invested through the recent volatility. I might have gained in the short term from selling out but it would have been bloody hard to decide when to get back in. Continue reading
Next time your investments are on a roll and you catch yourself feeling the familiar symptoms of overconfidence, I recommend you check out the Hussman Fund’s market commentary. I’ve found the relentlessly bearish perspective put forward in all of Hussman’s articles to be a sobering antidote to any euphoria I might be feeling at the time. I disagree with some of the reasoning and certainly with the conclusions, but he does raise an issue that piqued my interest and is the subject of this post. Aggregate corporate profit margins are about as high as they’ve ever been. How sustainable is this?