When is it a Bargain?

I spent most of the day researching equities. I ran across a very interesting article on valuations. It's written by Simon Lack and does justice for the case of buying equities in the natural gas sector. His article can be found at: http://seekingalpha.com/article/213594.

I think his analysis is well balanced, weighing the factors for and against investing in just a few exploration and development companies (Southwestern Energy and PetroHawk). However, his most important contribution may be in his warning: "While timing is never easy..." Timing your purchases is nearly impossible.

There are two approaches I can recommend to assist you: First, if you are looking at growth stocks, follow the market, don't try to lead it. Wait for pullbacks in price when volume is low. Secondly, if you are contemplating value stocks, average your purchases on the way down. My rule is to NEVER average purchases of growth stocks on their way down-average them on their way up.

Interesting how valuations work. I've been following the asking prices for used woodworking tools on Craigslist.org. It's a great resource for computing depreciation of your equipment and weighing the value of purchasing new versus used. Just like researching stocks, it's always a question of price versus timing.

I found a Porter Cable 893 router, never used and in the original box (retail $275+-) for $160. Was it worth it to me to wait for a lower price or to purchase it immediately? I felt that is was a very high quality product with very old units selling for not much less. Did I try to pick the bottom? Of course not. Nobody can. I pulled the trigger and bought it because: 1) it has value to me at the purchase price and 2) it serves the intended purpose.

Buying either SWN or HK as an investments makes sense on a value basis at their current price. And, if the price falls, you can add to your position since there is value. However, if the intended purpose is immediate appreciation or income, they fail.

Whether buying a tool or a stock, better know both their real values and their intended purposes.

The lawyer in me needs to remind those who follow my blog that I am an amateur investor and not a registered investment advisor. Do your own research and seek the guidance of your own experts. There, the legalize has been posted.