Be Greedy When Value Investors Are Fearful?

Be Greedy When Value Investors Are Fearful?

Anyone who has read my articles on a regular basis knows that I like to look at market valuations from time to time. When I started writing several years ago most of my research was from the public domain. I now have access to a gargantuan amount of research. It turns out that market valuations for almost every single country and using almost every metric (besides PB) is readily available. We look at some numbers for European countries. The E in the PE for many countries is severely depressed, so that metric fails to show how to cheap some of the PIIGs are. Similar to how the PE TTM was about 110 for the S&P 500 at the market bottom in early 2009.

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I will tell a quick story (I am not a registered investment advisor nor offering investment advice). Someone asked me recently where the S&P 500 will be at the end of 2013. I responded that I think it will be lower (after four years of large gains, margins decrease, high valuation etc.) but there is a 50% I will be wrong. However, I stated that I am 99% certain that PIIGs will not only beat but crush the Stox 600, S&P 500 etc. over the next five years or so. I think Europe still faces many challenges, and Greece looks like it is on the verge of collapse, but I am not a market timer and Greece has a CAPE of 2.5!

I decided that I will get back to more market valuations a different day, let me talk a bit about Greece and value investing (this is a very informal article for me). I strongly recommended Greek equities in June 2012 right before the elections. I was speaking to a real value investor (not the fake types) and told him I think they Greek stocks are an incredible buy. He looked at me as if I was insane. If I had that conversation with a macro investor he likely would have thought even worse! Since my recommendation, the ETF GREK is up approximately 63%  (the ASE is up ~70%) versus 10% for the S&P 500. The S&P 500 has a CAPE of 22 while Greece has one closer to 3, it is clear which has more upside in the coming years. Dan Loeb copied me by buying Greek debt shortly after (as we first disclosed), and it appears now that other value investors are starting to invest in the PIIGs. Wilbur Ross was likely the first bargain hunter in the area with his investments in Ireland.

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I think that the saying be greedy when others are fearful applies even to value investors. Many value investors I know were too scared to buy in March 2009; they missed out on the best bargains in recent memory. Perhaps the attitude of even other value investors can be a contrarian sign. Of course being a contrarian just for the sake of being one is stupid. However, when even bargain hunters are fearful, more bargains can usually be found.

I will leave readers with that thought and one chart of European country market valuations (via Morgan Stanley).

Disclosure  I am long several of the PIIGs

European market valuation in germany greece and other european countries


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