It’s somewhat mystifying to me that the market had such a broad sell-off today after the announcement by S&P on Friday of their downgrade of U.S. debt. If you’re an investment professional who pays attention, S&P has broadcasted the possibility of a downgrade for several months. So I ask myself, “Why is now a great time to sell stocks?” I have trouble coming up with a good reason.
Currently, there are lots of companies out there selling at bargain prices. I’ve written about Berkshire Hathaway (BRK-A) several months ago. I thought it was a good bargain then and now its an even better bargain. The stock is trading at a mere 4% above book value. It’s trading at a mere 7.7 times free cash flow (I annualized the past 6 months of FCF)—that’s a FCF yield 13%!
Or you can look at Markel (MKL), which is also trading at a mere 4% above book value. This is a company that has grown book value at an annualized rate of 10.93% over the past 11.5 years.
You could look at Ensco, a deep sea drilling company, which is trading below book value and which now has a dividend yield of 3.46%.
I could go on and on with a long list of companies trading at a large discount to intrinsic value. Though it feels awful to see your current holdings down over 10% these past several weeks, now is the time to buy, NOT the time to bail out.