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I will often be asked: “Why should I spend six years to make my money when I can buy small stock X that went up 432% last week, or buy Apple which zooms up from time to time, and be done with it?”
There are a lot of ways to make money in the stock market. Everyone finds a way that suits their temperament, their tolerance for risk, and their adrenaline level. Beyond that though, I have to ask you: How much are you willing to pay for nothing.
Any time that you buy a stock in excess of its fair market value, that is what you are buying.
According to my time-tested indicators, the market is very, very overvalued right now. That is not to suggest that a large or sharp correction is imminent, but certainly there is little doubt that, with prices as high as they are, a little bad news or some collective profit-taking by mutual and hedge funds could cause a reset of at least 3%-5%.
If you have followed my column that was formerly on Morningstar.com, as value vultures, we were engaged in buying stocks of companies that would benefit from the calamities in the market which had found themselves wedged in the circumstances of fear and credit crunches.
As a good Value Vulture, I set upon a course through 2008 to now to buy distressed companies and companies that were profitable but having their stocks hammered unjustly by the greater circumstances of the market.
They had to have incredible cash flow, lower debt, a 17% discount to fair market value and dream of all impossible dreams, a 3% or better dividend return.