Value Investing 10 Commandments

May 5, 2004 06:09 · 235 words · 2 minute read

Lately, I’ve been seriously thinking about where I think the stock market is going to go. Everyone says “you can’t time the market”, and staying in stocks pays off in the long term. However, I really think that most large cap stocks are overvalued. It doesn’t matter that the economy is doing fairly well right now. Stock prices are just too far ahead of corporate earnings.

Right now, I’m reading Bull’s Eye Investing by John Mauldin. I’m certain that many people out there disagree with Mauldin’s bearish outlook on today’s market. I think he’s right on. Prices are quite high relative to earnings, and there are many factors that will be pressuring earnings over the next few years that will make it next to impossible for most companies to catch up. This means that a correction (or stagnation at least) is in order. I’d rather not be a part of that. I’ll probably write more about Mauldin’s book after I’ve finished it.

One way to correct the imbalance is to invest in stocks that are selling at a discount to their fair price. The Motley Fool (which is where I learned of Mauldin’s book) has compiled the Value Investing 10 Commandments in All You Need to Know for Value Investing, which includes a number of quotes and thoughts from Warren Buffett.

In other interesting money news, Buffett has signed on as Kerry’s economic adviser. Groovy.