This morning, after I had gotten our little one off to school and walked the dog, the first thing I did was to head to the CNBC site to replay Sam Zell appearance. I have found Mr. Zell's commentary to be incredibly useful over the years. He may not be flawless, but he has made billions buying what others haven't wanted, and selling what they've been clamoring to buy.
In case you missed it, this morning Zell said that he believes the stock market is overvalued and that there is too much optimism about stock prices, and he continued to make the case that stock prices are not justified by the current level of economic activity. Zell started his company back in the 1960s, so he has seen just about everything in the markets and economy -- so his opinion is worth considering.
While I was on the CNBC site, I took a few minutes to look around. It's not one of my usual stop-off points during the day, so I was interested to see what the media and others have had to say this week.
It was enough to make my head spin. The differing opinions and suggestions on that single site would be enough to bewilder Einstein. When you realize they are just one of dozens of media outlets reporting on the markets, it becomes easy to see why individual investors over-trade and underperform.
There was Dennis Gartman reversing his bull call from last week, saying he was now scared of stocks. Then there were others expressing the opinion that things were not all that bad, and that the market could actually be in fine shape. Art Cashin said the market was oversold but that, if the indices pierced a certain point on a certain chart, it could be in real trouble. One analyst thinks stocks aren't cheap anymore, while another opines that there is still value left in the formerly red-hot biotech sector. There are discussions of a cyclical switch amidst the selloff, and warnings of a dead-cat bounce.
In short, the opinions and discussions are all over the board. If anyone came to the site looking for some sort of advice or information about what the market might do, they'd come away even more confused than they had been when they started.
The only way to survive this noisy deluge of opinions and statements is to ignore it as much as possible. All of these well-dressed, thoughtful people with firm opinions on the market actually have no clue what the market will do over the next few weeks or months. If pressed, I would admit that my opinion of the market is pretty close to that of Mr. Zell, but I am not going to use that opinion to make decisions that would lead me to zell stocks that are not overvalued. Nor would I hesitate to buy an issue that's clearly a safe and cheap bargain. To succeed in the stock market, you have to push through the noise and chatter and focus on safe and cheap as your most important investment considerations.
If I take a big-picture look at the ratio of market-capitalization to gross domestic product, the Tobins Q ratio, the Schiller price-to-earnings ratio and the Value Line Median Appreciation, I see the indicators potentially point to a stock market on the high side of fair value. I am having a hard time finding cheap stocks, as well, and that fact also makes me a bit wary. However, while researching stocks for a Real Money article last week, I came across two that were both safe and cheap enough to pick up: Preferred Apartments (APTS) and Campus Crest Communities (CCG). I bought both of them, even as the market was firing with new highs.
On any given day I can find 100 well-thought-out reasons to buy stocks and 100 equally well-thought-out reasons not to buy stocks. But if you ignore the broader market and just focus on valuation and safety, you will naturally be buying more stocks as the market falls and selling as the market rises. The noise doesn't matter. The value of what you are buying, relative to the price you are paying, is the only metric you need to find long-term success as an owner of stocks.
