August 2, 2012 Comments

Today the market was down because the European Central Bank did not promise to meddle in the markets immediately. It did however warn (err promise) that it would get ready to meddle before too long.

I view dips caused by this sort of thing as more of an opportunity than anything.

Melcor released earnings yesterday and the report was quite good. This is an under-valued stock that flies under that radar screen. The trading volume is too little to attract much attention. This is a boring company that has been listed on the stock exchange since 1968 and which traces its roots to 1923. It’s still controlled by the founding Melton family. It’s trading at 0.8 times book value and 10 times adjusted earnings. It’s a well managed company. It will have its ups and downs but I would be very surprised if it did not turn out to be a good long term investment (and perhaps good in the short term too). I had an order in to sell some of shares if it hit $15.90. It almost got there yesterday but not quite. I have now canceled my order to Sell. I was only selling to raise cash and maybe play the volatility a bit. Actually, I more inclined to buy more at this price rather than sell.

Facebook (or faceplant) hit $20 today. Linked in reported better-than-expected numbers after the close. I would think facebook should be close to a bottom here. But one never knows…

Yesterday there was a sort of mini flash crash as Knight Capital Group a U.S. market maker had a computer program go wild. It looked to me though that the real error was in their panic selling of some stocks they had bought by accident. Perhaps they could have sold more slowly.

Some investors feel that these events make stock markets more dangerous. I would argue it was nothing but an opportunity. I never use stop loss orders because I don’t believe in the “sell low” strategy. Value investors don’t use stop loss orders, those are for traders. Value investors would be more likely to have “stink bids” in. For example some lucky buyers picked up Berkshire yesterday at as low as $82.12. Not a huge discount but it was over a $2.00 instant drop that quickly recovered. If you have confidence in the value of the companies you own then the fact that the stock falls even further below a reasonable value is merely an opportunity to buy more. Admittedly it is a worry when it happens but in the long run it is often advantageous.