Here we go again with another market selloff. I think it's safe to say that markets are now on edge; good news leads to a 500-point surge in the Dow Jones Industrial Average, while not-so-good news leads to a 500-point plunge. Gone are the good old days when a market selloff meant a 1% decline and a good day for stocks was a 1% advance.
When the market seesaws back and forth, few investors want to hear about long-term investing; and I am not about to praise "buy- and-hold" investing, either. Instead, I merely try to buy at one price and sell at another, much higher price. When I buy, I do so with the intent of holding a security for a period of years if that's what it takes for the stock price to reach the intrinsic value. Nonetheless, if the market wants to bless me with a gain sooner, then I will gladly take it.
When markets drop -- like they are doing today -- lower stock prices create opportunities for higher gains. The insurance company Fairfax Financial (FRFHF) is a name to consider because the company will likely prosper if markets continue to deteriorate. In 2008, investors make a killing with Fairfax because CEO Prem Watsa bet against a disruption in credit and mortgages blowing up. Today, the company is similarly well positioned for turmoil; Watsa has bought put options on the S&P 500 and other similar securities to insulate the company from a market selloff. As of midday, shares are down 2% vs. nearly 5% for the market.
One of the shrewdest investors who gets the least attention, in my opinion, is Wilbur Ross. Ross's record speaks for itself. His ability to buy distress assets -- coal and steel come to mind -- turn them around and sell them for a tidy return is unmatched. Lately, he has gobbled up shares of the natural gas producer EXCO Resources (XCO). His firm, WL Ross & Co., recently increased its stake in XCO shortly after entering into a "standstill" agreement that lets it accumulate up to a 20% holding, but prohibits it from engaging in any takeover activity until Feb. 3, 2013. Ross owns 25,605,177 shares (10%), including 4,605,177 that it purchased during the first week of August at prices ranging from $13.88 to $15.92. Today, shares trade for $13.50.
You can't ignore the juicy dividend yields that get juicier when stock prices decline. Southern Copper (SCCO) mines the metal in Peru, Mexico and Chile. Shares trade for 13x and 9x trailing and forward earnings, respectively. The company has a very conservative balance sheet with $1.7 billion in cash against $2.7 billion in debt. At $30, shares trade near the 52-week low of $27 and from a high of $50. There is concern surrounding a new windfall tax that the Peruvian government is implementing later this month. For what little it may be worth, Peruvian President Humala is working to reassure investors that the tax will not deter companies from $40 billion in planned mining investments. At today's price, SCCO yields more than 7% as a result of the price decline.
Investing is simple; invest at an undervalued price and sell at a higher price. The difficulty is in executing that philosophy because emotion and fear will often trump rationality. But, for those investors who were nibbling in the market yesterday, today's prices should have you even more excited. If prices go lower from here, -- and there's a good possibility that it will, your greed factor should go higher.