It is not over until…..

By | October 29, 2018

All the bulls on TV or news media have given up.

In our recent quarterly commentary, we talked about the pricey situation with most of the index stocks in US equity markets. And in last week’s weekly post, we believe a correction or mild bear market might have been upon us.

However, that’s not what the TV pundits believe. In various shows different “experts” came out to state that they believe this correction is short-lived. They will double down on technology stocks hoping a strong rebound later on. Well, that hasn’t happened yet. And we don’t think it will happen soon.

Instead, their comments gave me very good indicator that current market actions are not over.

Remember in February 2016, when news of China slowdown surfaced and panic spread across various corners of the financial market, together with an extremely challenging energy market, almost no one in news or TV suggested that the selloff then was an opportunity to buy. That’s when Jamie Dimon famously called the bottom of the market and loaded a large position on JP Morgan stocks.

Unfortunately now there are too many people out there hoping/thinking the correction is over. We think it is far from over.

Does that mean you can’t buy anything? Not necessarily.

Our philosophy is always that we don’t believe we can time the market and we will never do. What we will do instead, is to measure the current offering price of a piece of business against its normalized earning power. If the return on our invested equity is acceptable, after considering margin of safety for miscalculations, we will make the purchase, regardless what the pundits say or what the charts say.

What happens to its price next day is not in our consideration. We would focus on all the energy in understanding its fundamental business. As long as the normalized earning power is fine or getting better, and the return on our equity is acceptable given interest rate environment, it will be welcomed to join FIC’s family of businesses.

Sometimes it is a good business at a fair price, sometimes it is a fair business at a discounted price. We welcome both types!

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