I'm not trying to be Dr. Doom. I want to make money from stocks more than anyone. I just know the way to do it is buy when prices are lower than they are higher. To the person who is sitting on a pile of cash today, days like today should create dollar-sign dreams.
The market could turn later today, of course, and I'm not focusing on one day, one week, month or even year. But as many astute businessmen and women will tell you, money is made when an asset is bought, not sold.
Steel company Posco (PKX) has sold off over the past week and I peg the intrinsic value of that business to be $130 to $150. A new CEO is committed to make the global giant more efficient and focusing on higher margin value added steel components. Shares have dropped from $86 to approximately $78. Further declines in share price because of market turmoil enhance the margin of safety. Oil drillers are not being spared and names like, Ensco (ESV), strong>Transocean (RIG) and Rowan (RDC) are looking better and better each day.
Market days like today over time present buying opportunities. If this is the beginning of a prolonged market decline, however, then perhaps what I'm saying is foolish. It's only foolish when you don't know what you are buying. Value always matters. What declining markets allow you to do is buy more a good thing cheaper. Those who bought "early" in 2008 and watched the market tank until 2009 still have done well today.
The lesson is to pick your stocks carefully and don't be afraid to piggyback on the shoulders of great investors. Then take advantage of market declines to buy cheap, with the willingness to be patient. A week of declines like this won't render the entire market a bargain. But it could create select opportunities.
Chesapeake Energy (CHK) is a big holding of Southeastern Asset Management. The shares are slipping back a bit and if they fall below $20, the business would be an even better bargain that it is today.
The market is still nice and lofty but the value juices will hopefully start flowing really soon.