Investing in Uncertain Times

Another clipping from my Kindle, source unknown.

In times of uncertainty, note that investors should get back to the practice of measuring assets, not growth potential, as a starting point for investment. “I think book value has been denigrated too long as a measurement of what a business is worth,” he explains. “I know in some industries it is a tremendous measurement—banking for one—and less so in others, the Internet being the best example. But the bottom line is that investors need to do more homework to figure out where they’re putting their money.”
Don t fall off the cyclical Always be wary of cyclical stocks. True, companies such as Caterpillar or Deere may look irresistible with low price to earnings (P/E) ratios and high short-term sales and earnings growth rates. But a closer look at the long term reveals a P/E in the teens and years of marginal earnings or even losses mixed in. Look at the long term and be aware of stocks that dip as the business cycle dips. Basic industries, such as capital equipment, natural resources, paper, farm machinery, automobiles, and auto suppliers, are notorious for sending signals of intermittent strength while showing little in the way of sustained growth. The recent tanking of homebuilding stocks is an extreme case in point. It is amazing how many short-term-oriented investors bit on the apparent value in this sector!