Good News – Shares Are Getting Cheaper!

Yes the markets are plummeting, but that’s surely good news. It means you can buy the profits and cash flow that companies generate at lower prices! But the irrationality of investors and their tendency to follow the herd means they often do not pay attention to this good news.

The market turmoil at present is simply one of those sell-offs where investors think that sentiment has turned and it might be a good time to realise some profits. But the projections for the earnings of companies have not changed, nor for the dividends they might be paying in future.

The stocks that have been badly hit are those where the earnings are non-existent and the cash flow negative. In other words, those where growth in revenue is expected sooner or later to generate some profits. Or where speculators are playing a game of “pass the parcel” where they hope to sell to a bigger fool.

So here’s a few companies that suffered today of that ilk: Blue Prism (down 6%), Purplebricks (down 7%), LoopUp (down 7%), FairFX (down 7%), Wey Education (down 14%). These are not necessarily bargains yet as confidence in their future is everything when evaluating such businesses and confidence is fast evaporating from investor sentiment.

What should one do when the market is falling? One thing to bear in mind is that you can never know how far the market will fall, or when it might start to recover. Don’t try is my answer. Just follow the trend – the trend is your friend as the old saying goes (author unknown). In other words, you should not be buying when everyone else is selling because trends can persist for an unexpectedly long time. You need to wait until the market, and the individual stocks you are looking to buy, really, really do look very cheap on fundamentals. We are surely a long way from that point at present.

I shall wait to see if any bargains appear.

Roger Lawson (Twitter: )

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