The bull market is now well into its 10th year, and many investors have been scratching their heads, trying to figure out how to be positioned heading into 2020. On top of an upcoming election and the media constantly warning that the next recession could be imminent, the Dow Jones industrial average, S&P 500 and the Nasdaq Composite have all challenged all-time highs in July.
Is this a time for investors to consider rolling out of growth and into value? Some investors might choose the safety of lower valuations and dividends over some of the high-growth stocks. However, value investors had better be very cautious about what sort of “value” they are looking for.
One steadfast rule of investing is not to fight the tape. In short, if the market or a sector keeps ticking up, it might not be best to look at the stocks that are down and out. If a stock is hitting 52-week lows when the market is hitting all-time highs, imagine how crummy it might be in a bad market. Still, some investors want to feel like they are getting to buy a stock or a sector when they are at bargain prices and valuations.
Value investors have to understand that there are many reasons why stocks look cheap at any given time. If the market is valued at 18 times expected earnings, then stocks valued at eight times and 10 times expected earnings have to sound dirt cheap. There is usually a reason for that. This is where value investors can get caught easily in a so-called value trap.
24/7 Wall St. and its founders have evaluated stocks, bonds and other asset classes for many years now. One issue that remains puzzling is how and why many investors improperly evaluate companies and sectors