Well, if January’s wasn’t tough enough, here comes February’s market and more volatility. In the Navy, we jokingly called a situation like this “another chance to excel.”
And if Bill Miller, the hugely successful manager of the legendary Legg Mason Value Trust, is reliable (and I know he is): Excel we will!
I worked at Legg back in the ‘90s, when Bill was running their mutual funds. In an interview with CNBC’s Squawk Box two weeks ago, he was unusually jovial – even giddy – when talking about the opportunities this market is handing us.[ad#Google Adsense 336×280-IA]And believe me, Bill Miller is not usually giddy or jovial.
He sees huge buying opportunities at unbelievable prices and price-to-earnings ratios: in short, an abundance of value plays.
I couldn’t agree more.
Since mid-January, I have been buying big-name companies for my own account with dividends of at least 3%, good growth rates, low debt, and solid earnings and revenue estimates.
I’ve gotten all of these well below their 200-day moving averages and at or kissing their 52-week lows.
Yes, that’s a pretty good list of criteria for shopping this market.
This is one of the best opportunities since 2008 to rev up the quality and income in a retirement portfolio.
But, as usually happens, cash is not always available when the bargains are. I am actually close to my minimum cash position right now. I have been buying a lot.
But here’s a technique that can help. I learned it from the big value players when I worked at Legg.
If I need cash to buy into a bargain market, I look at the companies I own where I can take a small tax loss, break even or score a gain – if there are any of those companies left.
And I’ll only sell if I can buy another company that is a better value.
Of course, the issue: What constitutes better value?
Well, if our last opportunity like this in 2008 and 2009 provides any clue, I never regretted buying a company with a higher dividend, better growth estimate, lower payout ratio, better dividend history, better earnings and revenue estimates, and close to or at a 52-week low (I like to see around a 20% dip below its 200-day moving average).
But – and this is one of my huge “buts” – never jump on a stock just because it has a big dividend. If it seems too high, it is, and you are asking for trouble.
ConocoPhillips (NYSE: COP) is a perfect example. Its dividend was over the top until last week when the company cut it. The stock was crushed.
There are more like this to come.
Stay realistic. Shop for the names you want to own and thin out those current holdings that have a lower relative value.
And only quality companies. No speculative junk ideas!
There is no reason to stick with an underperformer – not necessarily a bad stock, but an underperformer compared to the current market.
Look through your portfolio and see if you can upgrade in what Bill Miller called “a value player’s dream market.”
Source: Wealthy Retirement