If there is one thing I have learned over the past ten to 12 years as an investor, it's that the value of doing nothing is worth something. Consider this. In 2009, after the market had crashed, if you put your money in an index fund and then did absolutely nothing related to investing--golfed every day or what have you--your investment returns would be better than over 80% of today's professional money managers.
Doing nothing is indeed doing something.
Today, with stocks climbing higher and higher each day, human nature tends to want to do something out of fear that doing nothing will be costly. These mistakes of activity are not new to humanity. Seventeenth century mathematician Blaise Pascal observed that man's greatest misery stems from his inability to sit still in a room alone.
Against today's market backdrop, my approach is simply to continue searching. I look at new 52-week low lists daily. I pay attention to the biggest percentage price drops each day. I have Google Alerts for over a dozen investors so I get alerts in real-time. All these activities are indeed investment decisions.
When markets are rising, more opportunities are likely to be found in smaller areas of the market, such as micro-cap stocks. While many believe that micro-caps pose a greater investment risk, which is a risk worth noting, investment risk really comes down to what you buy and what price you pay.
Travelzoo (TZOO) is an interesting idea and a good example of investing in this market environment. At the beginning of 2015, shares started declining and were down over 30%, basically ascribing little value to the business given the $50 million in cash on the balance sheet. As of today, the shares are up over 7% year-to-date or up over 50% had someone bought on the decline. Either way, the company is handedly outperforming the market year-to-date. Travelzoo reveals why waiting and watching for the right time to strike is a valuable exercise.
Lakeland Industries (LAKE) is a $60 million micro-cap stock that also may be interesting today. Shares trade below $9 compared to $30 over the past year. Lakeland is a global provider of safety clothing and accessories. Annual revenues are nearly $100 million, but operating history has been checkered. The balance sheet is good, as the company has reduced debt, and tangible equity sits at $54 million. Recently, Lakeland announced a plan to explore strategic alternatives. The company has an operation in Brazil that appears likely to be exited in one way or another.
In today's market, waiting for opportunities and taking a surgical approach to finding new ideas is going to be required to minimize painful surprises. Simply investing because stocks are going up only lasts for so long.