The Case for Value Stock Investing... What If?

Wall Street Institutions pay billions of dollars annually to convince the investing public that their Economists, Investment Managers, and Analysts can predict future price movements in specific company shares and trends in the overall Stock Market. Such predictions (often presented as “Wethinkisms” or Model Asset Allocation adjustments) make self-deprecating investors everywhere scurry about transacting with each new revelation. “Thou must heed the oracle of Wall Street”… not to be confused with the one from Omaha, who really does know something about investing. “These guys know this stuff so much better than we do” is the rationale of the fools in the street, and on the hill (sic).

What if its true, and these pinstriped super humans can actually predict the future, why do you transact the way you do in response? Why would financial professionals of every shape and size holler “sell” when prices move lower, and vice versa? Would this pitch work at the mall? Of course not. Now lets bring this phenomenon into focus. Hmmm, not one of these Institutional Gurus ever doubts the basic truth that both the Market Indices and individual issue prices will continue to move up and down, forever. So, if we were to slowly construct a diversified portfolio of value stocks (My short definition: profitable, dividend paying, NYSE companies.) as they fall in price, we would be able to take profits during the following upward cycle… also forever. Hmmm.

Let's pretend for a (foolish) moment that broad market movements are somewhat predictable. Regardless of the direction, professional advice will always fuel the perceived operative emotion: greed or fear! Wall Street's retail representatives (stock brokers), and the new, internet expert, self-directors, rarely go against the grain of the consensus opinion…particularly the one projected to them by their immediate superior/spouse. You cannot obtain independent thinking from a Wall Street salesperson; it just doesn't fill up the Beemer. Sorry, but you have to be able to think for yourself to stay in balance while pedaling on the Market Cycle. Here's some global advice that you will not hear on the street of dreams (and don't get all huffy until you understand what to buy or to sell as well as when to do so): Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon, incrementally. Always have a plan. A plan without buying guidelines and selling targets is not a plan.

Predicting the performance of individual issues is a totally different ball game that requires an even more powerful crystal ball and a whole array of semi-legal and completely illegal relationships that are mostly self serving and useless to average investors. But, again, let's pretend that a mega million-dollar salary and industry recognition as a superstar creates Master of the Universe quality prediction capabilities…I'm sorry. I just can't even pretend that it’s true! The evidence against it is just too great, and the dangers of relying on analytical opinions too real. No one can predict individual issue price movements legally, consistently, or in a timely manner. Face up to this: the risk of loss is real; it can be minimized but not eliminated.

Investing in individual issues has to be done differently, with rules, guidelines, and judgment. It has to be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are portfolio specific and without calendar time restrictions. This is not nearly as difficult as it sounds, and if you are a “shopper” looking for bargains elsewhere in your life, you should have no trouble understanding how it works. Not a rocket scientist? Good, and if you are at all familiar with the retailing business, even better. You don’t need any special education evidentiary acronyms or software programs for stock market success… just common sense and emotion control.

Wall Street sells products, and spins reality in whatever manner they feel will produce the best results for those products. The direction of the market doesn’t matter to them and it wouldn't to you either if you had a properly constructed portfolio. If you learn how to deal unemotionally with Wall Street events, and shun the herd mentality, you will find yourself in the proper cyclical mode much more often: buying at lower prices and, as a result, taking profits instead of losses. Just what if…

Coming next: Developing a Value Stock Watch List and Profit Taking Targets.