Insist on Value…as always….watch insiders(officers/directors)

Pointe Claire, Quebec, March 8, 2017                                                                                                          We remain almost fully invested in our specific stocks but have said too many times that the stock market based on several significant gauges is wildly overvalued in too many (but not all) publicly traded stocks. We invest when specific stocks have suffered severe declines and by our analysis are severely undervalued. Undeniably, they often decline more before they turn around; but that has always been our method. We leave open limit orders for specific stocks at prices that are below the prices they are trading at. We never are able to buy all the shares we want and zero shares of many companies that never decline to the limit order prices we want to pay, but we do get real bargains. This was a strategy described thirty years ago by the late renowned investor Sir John Templeton.

We have expected the market to suffer 20% to 30% corrections over the past three years, each time to be followed by returns to the upside, yet the harsh downsides did not occur. Those normal corrections would have prevented the stock market (and many stocks) from its current extremely high overall valuation which makes it very vulnerable to harsh corrections……and a long brutal bear market.

We see high risk today in many popular heavily brokerage recommended stocks. Opportunities for exceptional capital gains are always present in the stock market but too many stocks have been touted, shilled and bought at the high end of their price ranges. Again, many of the best performing stocks are now selling at very high valuation levels which usually end sadly. Many are good quality stocks but they are simply priced too high and investors are paying too much for them. History shows that “paying up” at too high prices leads to disasters.

                                                    Let’s consider these factors….again.

Officers and directors are selling at an enormously large rate. The last two weeks saw “insiders” selling a value of their own shares of over $962,000,000…. And as for officers’ buying? For every share that the most informed of investors (officers and directors) bought, they sold thirty five shares. Pay attention! The last time we saw these levels was in 2000 and again in 2008. Again, the recent insider sell levels in the past have always simultaneously occurred with the beginning of brutal bear markets.

 Today, as always, there are many companies that are selling at much too high prices based on expected earnings and technical analysis. It happens often as recommendations by the large brokerage houses are ongoing and keep going despite overvalued price levels. The large brokerages cannot afford a bear market which brings less volume and low to no profitability. At the same time, many institutions must be near fully invested in the market despite the high valuations. They cannot remain in cash as they are competing and must perform. Despite high prices they must pay whatever the prices are as holding cash is not really acceptable at most funds unless you’re Warren Buffett.

         TAKE ADVANTAGE OF DECLINES AND BEAR MARKETS                                                                  On the bright side, harsh corrections offer investors and institutions exceptional opportunities to accumulate stocks at lower prices while they are literally “on sale.” The stage is still set for another brutal bear market despite the recent Trump rally. Near zero interest rates and Quantitative Easing have been major enablers supporting the stock market as well as the Federal Reserve buying stocks. Bear markets and severe corrections for patient value-oriented investors, should as always be opportunities to invest while many stocks are “on sale.”

STOCK MARKET DOLLAR VALUE TO GROSS DOMESTIC PRODUCT…. The recent insider sell levels in the past have always simultaneously occurred with the beginning of brutal bear markets. Moreover, the value of publicly traded U.S. stocks to U.S. Gross Domestic Product is now at the 130% to 140% level. While not a “timing signal,” brutal bear markets have begun from these valuation levels in 2000 and again in 2008.

NOTE WELL   There are numerous companies and sectors that are exceptionally undervalued that offer opportunities for exceptional capital gains.  Our analysis still suggests that many gold and silver mining companies are extremely undervalued and by several value benchmarks are at their lowest level of valuation in their history. To us, it is an opportunity that few will take advantage of-as always.                                                                                                                                                                                                                                                                                    

     Keep this in mind…Bull markets do not end due to overvaluation. They end with interest rates rising sharply, often with a decline in the money supply or a recession. Note that dangerous market tops are usually accompanied by overvaluation and euphoria. Are we seeing that now? The artificially low central bank engineered rates have prevented the stock market from normal harsh corrections or bear markets. In the meantime, insist on value and invest in what is undervalued not what is popular.* Please keep in mind that you are more intelligent than the Wall Street experts, because you are.