Flaming Blue Chip Bargains

Picture by clement egyx

I knew it was a mistake to sit so close to the stage. I just knew it.

Those fire acrobats from Alchemy at the Singapore Night Festival last weekend seemed a bit too free and easy with their flame-throwing. I had to check several times during the show to make sure that my eyebrows weren’t singed.

Admittedly, the show looked dangerous. But that is part of the attraction. The performers on stage knew exactly what they were doing. I was never in any real danger.

Playing with fire

Some people have described buying shares in a market crash as tantamount to playing with fire. Stocks were down in just about every part of the world on so-called Black Monday.

From China in the East to America in the West, and most every country in between, stock markets slumped.

It is hard-hat time”, I heard one pundit say. “It is all China’s fault”, opined another. “Get out whilst you can“, was the considered opinion of a third.

But probably the most ludicrous advice, which came from a silver-tongued trader, was: “Wait until Labor Day”.

They all seem quite plausible, don’t they? But they are not. Let’s unpick that last one, as an example.

If we believe that buyers would return on Labor Day, then would it not make sense to be one step ahead of the crowd by buying a day before? But if people are going pile into shares the day before Labor Day, then wouldn’t it make even more sense to buy the day before them…and so on.

That just highlights the nonsense of trying to time the market. It is never about timing the market.

Golden opportunity

Market crashes are a golden opportunity. But as Peter Lynch once pointed out: “People invariably feel better after the market gains 600 points and stocks are overvalued and worse after it drops 600 points and the bargains abound.

So, if you can’t convince yourself when you are down to be a buyer and get away from the preposterous notion that when you are down to be a seller, then you will never make money from stocks.

Unfortunately, in times of market panic, the first thing that tends to go out of the window is logic. That is except for those of us who know why we bought a particular stock in the first place.

Your edge

Our edge – an important edge – is quite simply that we know the difference between price and value.

A market slump, therefore, provides us with a great chance to buy more of the stocks that we like, at a favourable price. It is why those in the know buy when there is blood on the “Street”.

For instance, around a year ago investors were paying $12 for every dollar of profit that industrial conglomerate Keppel Corporation (SGX: BN4) was making. Two years ago they were willing to pay $14 for the same dollar of profit. Today, it costs less than $7 to buy that dollar of profit.

We at the Motley Fool never try to be perfect. We never try to call the next top or bottom of the market, either. We are long-term investors who buy good shares at a good price, and add to our positions when the opportunity arises. That is why we like market crashes.

We will probably never be able to show you how to juggle with fire a la Alchemy. But we can show you something even better – we can show you how to differentiate good companies from the not-so-good outfits. It is part of the things we have started to do at our new MF550 service.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock – Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.