Valuation Is More Important Than Politics or Interest Rates: And Most Stocks Are Overvalued Today


My personal investing strategy is based on the simple logic and reality that great businesses are by definition, better than average. Therefore, to my way of thinking, it logically follows that the best investment returns would be achieved by investing in the best businesses that you could identify. Moreover, it is also important to make sure that you are purchasing great businesses only when their valuation is sound, or better yet – low based on fundamentals. This is important, because you want to fully participate in the business results of the company you are investing in. Consequently, because of my commonsense strategy, I rarely worry too much about the level of the markets in general.

I have often written about this in the past, and what follows is a repost of an article I wrote in July 2017 titled “Should You Care That The Market Is Overvalued – It Depends”:

Most investors suffer from what I believe is an unhealthy (unprofitable) obsession with the stock market. Financial writers and professional investors never tire about offering up their opinion on what the market will do next – especially short term. Individual investors also are deeply concerned with how the markets are doing on a daily basis. To me this only makes sense if you specifically own the “stock market” i.e., an index fund. Otherwise, only what you specifically own should be of any concern to you.

Since I have been in the investment business (since 1970), I have emphatically stated that I do not believe in investing in the stock market, never have and never will. Since people know that I manage stock portfolios, this always conjures up bewilderment. You can see it in their eyes, asking how I can make such an outlandish statement. Well, I can because it’s the truth. I invest in individual companies and build portfolios one business at a time. The so-called “stock market” is only the store at which I shop to buy what I want to own. Just like any other market; grocery stores, drug stores, clothing stores, etc., once I buy what I desire, the store no longer matters.

The stock market, in all its iterations, whether the Dow or the S&P 500 or any number of other indices are averages. Therefore, by definition, “average” is simply a middle number. Consequently, the logical conclusion dictates that within the average are above-average and below-average companies as well. To carry this thought further, you can also say that logically there are most likely way above-average companies, way below-average companies – and everything in between.