I agree that recessions are buying opportunities for stocks that have been artificially depressed to below their intrinsic values. Problem is that intrinsic value is subjective, and reasonable people will have different opinions.
Another problem is that the vast number of people whose livlihood depends on the public always buying stocks and mutual funds act as salesmen for the market, frequently under the guise of objective research. This slants stock valuations and tends to push them above their intrinsic value based on the company's long-term cash flow and dividend yield. Recent history is full of examples of stocks that were touted as excellent values by "the smartest people on the planet", only to fall back to their intrinsic value, which is frequently a modest fraction of what the misguided public paid for them. I am sure you remember JDSU, CMGI, INTC (great company, but not at $80), CSCO (another great company, but not at $75) and the list goes on.
The mere fact that a stock has fallen considerably does not in itself make it a good value. It may just be a manifestation of something that came down from an extreme overvaluation to a more modest overvaluation. At the present, I see a great many stocks that are still quite overvalued, despite their fall. Buying them now will be just like buying INTC at $40 in 2001 just because it had just fallen from $80.
(disclosure: Long-term, buy-and-hold investor in INTC, all entry points in the low and mid teens).
Are Recessions Really That Bad? [View article]
Another problem is that the vast number of people whose livlihood depends on the public always buying stocks and mutual funds act as salesmen for the market, frequently under the guise of objective research. This slants stock valuations and tends to push them above their intrinsic value based on the company's long-term cash flow and dividend yield. Recent history is full of examples of stocks that were touted as excellent values by "the smartest people on the planet", only to fall back to their intrinsic value, which is frequently a modest fraction of what the misguided public paid for them. I am sure you remember JDSU, CMGI, INTC (great company, but not at $80), CSCO (another great company, but not at $75) and the list goes on.
The mere fact that a stock has fallen considerably does not in itself make it a good value. It may just be a manifestation of something that came down from an extreme overvaluation to a more modest overvaluation. At the present, I see a great many stocks that are still quite overvalued, despite their fall. Buying them now will be just like buying INTC at $40 in 2001 just because it had just fallen from $80.
(disclosure: Long-term, buy-and-hold investor in INTC, all entry points in the low and mid teens).