Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
At the beginning of the week, my colleague Matt Koppenheffer, who was attending the Value Investing Congress, made the following observation:
Key theme from @VICongress NY: market is fully valued, have to work harder to find value #valueinvesting
— Matt Koppenheffer (@KoppTheFool) September 16, 2013
The Value Investing Congress is arguably the premier networking event for professional value investors, but you didn't need to pay thousands of dollars to rub shoulders with the elite of the money management world to get the message:
- On Thursday, billionaire investor and Berkshire Hathaway (NYSE: BRK-B) CEO Warren Buffett told CNBC:
"[Stocks] are probably more or less fairly priced now. We don't find bargains around, but we don't think things are way overvalued, either. We're having a hard time finding things to buy."
- The same day, Meryl Witmer, Berkshire Hathaway's newest director and a distinguished value investor in her own right, told CNBC that "there aren't so many [really cheap, misperceived stocks] now."
- Finally, on Friday, another investing legend, Carl Icahn, suggested the market is -- at best -- fully valued, with the following comments:
"I think that right now, the market is giving you a false picture. The market tells you you're doing well, but I don't think a lot of companies are doing that well."
There is no question that this year's stock market performance suggests corporate fundamentals are in rude health with excellent prospects for earnings, as the total return graphs for the S&P 500 (^GSPC 1.05%) and the Dow Jones Industrial Average (^DJI 1.00%) demonstrate:
Icahn implicitly recognized that he has benefited from the surge in stock prices in pointing out that his own fund is up 30% year to date, but he didn't fail to add that he has "huge hedge" in place.
This is a stock-picker's market
Bottom line: There appears to a consensus among savvy, value-focused investors that we're in a market that is fairly valued and that presents few bargains. Let me emphasize that the investors I cited have demonstrated through a track record of success over long periods that they have a nose for value.
But if even Warren Buffett himself admits he's not finding many bargains, how is this a "stock-picker's market"? By that label, I don't mean it's an environment in which there is an embarrassment of opportunities, but rather that this is a market in which genuine stock-pickers can distinguish themselves by identifying the few existing opportunities (and managing the risk associated with existing holdings). The process of selecting individual stocks, rather than indexing, ought to provide the greatest advantage when stocks are broadly fairly valued, rather than undervalued. Value hounds, get sniffing!
