It is not that I did not find any attractive investment opportunities, I was just frozen like a rabbit in the headlights by the banking crisis, Lehman bankruptcy and sudden market decline.

In 2009 my number one what if question was:

What if there is another sharp decline should the economy stall after its jump start and steroid boost through stimulus spending? Which led me to think that: As the markets hit new low it will be time to get in!

It never happened and I watched the market take off with me just watching.

I did however earn a return of 6.5% on my portfolio while being about 70% in cash. But it could have been a lot better.


So what to do?

What I realised is that at any point in time there are a thousand things that can go wrong with the world economy, country economy and the company you invested in.

At the same time however there are a thousand things that can go right.

Companies aren't static entities, they constantly change, new products get developed, businesses or divisions get sold or closed, and they fight for survival. So there are a lot of positive things that can happen as well.

The key to profitable investing is not paying for all the positive things that may happen and to invest if you find something undervalued. Irrespective of market conditions.

What we must do then is to look for companies where the worst or all negatives are reflected in the price. That way we get all the positive developments for free.

How do we find these companies?

The best places to look are:

• The daily 52 week or all time low share price list
• Companies with the highest dividend yields
• Companies with the lowest price to earnings ratios
• Companies with the lowest price to book ratios

Companies that are in a dying industry such as newspapers, companies with inflated past earnings due to a bubble or industry tailwind such as commodity companies and US, Irish or Spanish construction companies last year.

You would be 100% correct. But you know what, it does not matter.

Because numerous long term studies have shown that indiscriminately buying the cheapest companies using for example price to book or price earnings ratios leads to index beating performance. Not every year, but on average over long periods of time.

Even if you do not indiscriminately want to buy cheap companies this is good news. What you need to do is further analyse the companies on these lists to identify worthy investments.

Look at it this way.

Analysing companies on these lists are like digging near a rich vein of gold. There may still be some rubble around but it's a lot easier to find gold than for example just starting to dig anywhere. For example analysing current hot companies being talked about in the media. Apple is an example where the current price reflects only positives developments.

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So in summary

There is always a 1000 reason not to invest, but if there is a really compelling opportunity we have to make use of it.

With the markets having moved up so much the obvious companies are gone. But if you look carefully, and am willing to turn over a few rocks there are still very good investment opportunities around.

You can do it yourself or you can take a look at my subscription service where I uncover hidden gems every month.

Your digging in the dirt analyst


Tim du Toit

P.S.   A company the market forgot about

Last month while running my stock screeners to find attractively valued companies I stumbled onto something that will interest you.

As you know I look for the absolute cheapest companies in Europe, the UK and the USA, irrespective of size and market they are trading on.

This time however I discovered “a gem lying in plain sight”.

It’s a really large company (that you can buy nearly anywhere) that has gotten really cheap. But is so large and obvious that it is completely overlooked by the market.

Something like a diamond lying on the sidewalk, you do not believe that it is a diamond and thus ignore it as you walk by.

Another reason I like the company it that it recently got rid of quite a large millstone around its neck, another factor that should help it perform better in future.

I immediately analysed the company and recommended it to my subscribers.


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