MICHEL PIREU: By all means invest in cheap stocks but be wary of bargains
Nothing is more destructive than thinking that a share trading at a record low is a good buy; if a big-name stock slides into the cheapie bin it’s not necessarily a signal to jump in
Investment superstar Seth Klarman, who typically focuses on out-of-favour stocks and bonds, says his business is to buy bargains that financial market theory says do not exist. John Templeton did pretty much the same thing and advised others to do the same. “Hunt for value and bargains, buy what most investors are selling.”
But Australian trader Richard Farleigh thinks that while most people start with the assumption that the markets are inefficient and that there are obvious buying opportunities, this is often based on vague, untested beliefs. “This is reflected in comments like the consensus is always wrong”, or “the market always overshoots”, says Farleigh. “Both of which are completely untrue.” ..
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