mark ballard

Mark's Investment Blog

This blog is intended to keep clients and friends current on my investment management activities. In no way is this intended to be investment advice that anyone reading this blog should act upon in their personal investment accounts. There are other significant factors involved in my investment management activities that may not be written about in this blog that are equally as important as the things that are written about that materially impact investment results. Neither is this blog to be construed in any way to be an offer to buy or sell securities. To be notified via e-mail when new posts are made, CLICK HERE TO SUBSCRIBE

Invest What You See – Update

2020-09-04 2

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This is a follow-up to last nights post-market-drop post.

We did open the market up this morning, but it was not a long-lived rally.  You can see on the graph above the blue line discussed last night on the S&P 500 Index graph.  We have moved decisively below it today, and more importantly we are now trading below the also discussed red envelope line.   There is still a long way to go to the 200 day moving average, but the market will be drawn there.

Why do I say that?  The 200 day moving average represents the balance of trades between buyers and sellers over the past year.  A reversion to the mean is inevitable, but you cannot use it as a market timing mechanism.  Just like stock value always reverts to fair market value, whether a company is over priced or under priced by the market – check out earlier posts this week for discussion on Apple and Tesla as well as P/E values – but you cannot use it as a timing mechanism.

We will get a bounce higher once the sellers feel exhausted – right now, you have the situation where selling begets selling as people who have purchased stock at high valuations want out before they lose too much money.  At some point, that will abate and buyers will step in who believe the prices will revert to their former higher level.  That is the time for you to be a seller – or a repositioner of your holdings.

I have had some people ask whether this is the beginning of a move back to the March crash lows.  The only answer I have is that we will have to watch the market and see what it tells us.  We have gotten conservative with client money prior to this move lower, so we are looking forward to buying good companies at lower prices.  However, determining that buy point is key – I’ve run some fair value calculations based upon 2020 estimated earnings, 2021 estimated earnings,  as well as mean Price to Earnings, Price to Sales and Price to Book ratios, and somewhere near the bottom red envelope line represents fair value per these calculations.  Since these calculations are all based upon estimated earnings, they are only as good as the aggregate analyst estimates I used for the calculations.

To start buying, you really need to look at individual companies or funds, calculate what you believe to be an upside target, and whether the current price provides adequate upside margin for you to risk you hard earned money.  It is what I do for clients and it is something you can do as well.  If you overpay for a company, you may not necessarily lose money, but you will not meet your desired return expectations.  So be diligent and pick your market entry points carefully. and everything will be all right.


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