The irony of investing is that it typically works out best when markets look their worst. Currently, things don’t look good.
So with that in mind, let’s find out where we are in the market cycle. To paraphrase Howard Marks, if we know where we are in the cycle, we can better prepare for what comes next.
I thought I’d approach this from a different angle. Rather than guess what the Fed might do or where inflation and interest rates are going based on past history and how it might affect the market today, let’s look at “irrational” stock prices.
The best way to track irrationally priced stocks is with an old Ben Graham strategy that has largely gone out of style. He looked for companies trading below their liquidation value. In rational markets, that shouldn’t happen. Yet, it does.
Graham’s “Net-Net” strategy looks for companies with a market cap below its net current asset value. Current assets are typically the most liquid assets a company has: cash, money owed to the company (accounts receivable), and finished products not yet sold (inventory). And the net current asset value is found by subtracting total debt from current assets. Continue Reading…