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Avoid complacence to limit losses

Stay calm in the crisis but don't get sucked in too early by rallies
April 3, 2020

No-one knows what is going to happen over the next few months. This makes valuing shares and therefore determining the value of stock markets very difficult. Yet more companies are telling investors that they can’t predict the short term future and are not paying dividends.

How on earth are investors supposed to value businesses at times like this and buy shares with any margin of safety against being wrong? Companies themselves have said that they cannot provide guidance on short term profits, so how outside investors can have the confidence to accurately value shares I’m not sure.

If you believe that shares should be seen as part ownership of a business as I do, then if you are investing today, you are taking a view that the future profits are being undervalued by the stock market right now.

You may end up being right but you have no visibility as to when businesses will start working again, how much profits will be, and how quickly they will get back to making the profits they have in recent years - let alone meeting the profit forecasts that their share prices were based on until recently.

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