Valuations Don't Matter…Are You Worth More Than Cash in Your Pocket?

  • Posted by
  • on March 2nd, 2009

Today, my friend Colin called me and asked me if I was worth more than the cash in my bank accounts. An interesting question because if you asked anyone that question you would expect the same answer….YES!!! (assuming no debts or you are not a complete PUTZ)

Now that the market has sold off by more than 50 percent, the valuation clowns are back on TV saying the market is cheap.

If you ran a screen of companies that were now trading below cash value, I bet there would be a few hundred to choose from (please someone do that for me and post in the comments).

Does that mean they are cheap?

As this bear rages on in time and price, you will start hearing more and more ‘talking heads’ talk about valuations being cheap and stocks trading for less than the cash on their books and ‘once in a lifetime’ bargains. Here is my one piece of advice for you…disregard all the advice.

Pay more for your stocks. Make sure you are not the guy calling the bottom. There is no need to be that guy. I have tried many times only to find weak stocks drift lower.

Companies can trade below cash for a long time. They can trade at astronomical valuations for a long time too. MOOD matters.

Right now companies that are being valued at less than cash have many fleas that you can’t glean from a quick look at a balance sheet or a stock scan or a blast from a ‘talking head’. If we start seeing the list persist and start growing over the next months, you will have some better context for the good being thrown out with the bad.
Right or wrong, the big money is on the sidelines and still redeemeing and saying that companies trading less than cash just can’t be trusted to spend that cash wisely.

Patience….

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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