The crack staff and I were out our morning walk today and as usual we saw a couple of alligators. This neighborhood has literally dozens of lakes and ponds so gators are a common sight either swimming around or even sunning themselves on the banks. As long as you don’t do anything stupid like walk up to them or let your pet charge them off leash they are no threat and I am a big fan of the alligator. Watching the gator skim around the pond this morning it occurred to me that investors should quit worrying about bulls and bears and think of the humble gator when investing in stocks.

Alligators may be ferocious beasts but they really are not much of a hunter. They just sort of hang around waiting for something delicious to get too close. I like to look for alligator markets where I can just hang around and wait for stock to be so cheap I can buy good companies at great prices and then slumber on the bank while time and compounding do all the work for me. The weeks after the 1987 crash were an alligator market. So was the internet bust. Of course 2008 and 2009 were wonderful market for alligator investors. You could find safe and cheap stocks by the bucketful and over the several years following the profits were enormous as the market recovered and the battered became the beautiful once again.

There is a reason Warren Buffett, Andy Beal, and Charlie Munger are billionaires. It is the same reason that Hetty Green was the richest woman in the world and Mr. Womack never lost money in the stock market. They are all alligator investors. They do not do much until there is something compelling and exceptional to do. They do not care what the moving average is or where the next Fibonacci level is. They are not concerned about what the volume was today. In fact they do not even care if the market was open today if they do not feel like there is a huge opportunity to buy things cheaply.

I have said repeatedly that we can have a discussion about this market being fairly valued or overvalued but you cannot even begin to discuss the market being cheap. It is much more a squirrel market than an alligator market. You have to do a lot of searching and probing into various holes and pockets of the market to find any real value. There is a lot of competition for the few ideas that are out there and there is nothing easy about finding deep value stocks with high recovery potential.

Unless of course you do what the smart alligators do when their current pond is fished out. They find a pond with lots of fish and go hang out there. That pond today is the small regional and community banks. We can still find plenty of banks at 90, 80 and even 70% of tangible book value that have sound loan portfolios and plenty of capital. Most of them have at least one activist or smart money bank investors as shareholders. Our mix of bank stocks is doing very well this year and there is still enormous upside ahead.

Don’t forget that in order to keep our own success from killing our returns we are raising the price on the regular Banking on Profits service on October 1. If you are not a member you have until then to become a member at the current $399 price. As a bonus that price will be locked in for future renewals. You also will get the monthly Banking on Profit free as part of you membership. You can click here to sign up at the current price

Oil continues to be on everyone’s minds. We own in oil stocks and feel no need to sell the ones we have as oil prices in 2020 are much more important to us that they close today. As I said yesterday I think the Saudis are all in on the market share gambit and unless other nations cut their production oil is going to be a slippery market unless prices fall closer to the breakeven $27 a barrel or we see more hedges roll off in the US unconventional fields and production declines as result of bankruptcy and financial distress among smaller producers. Right now scenario B looks far more likely to me. Of courses with energy there is always a knuckle baller in the bullpen any geopolitical event that disrupted production or supply would change everything.

I am not opposed to buying more energy but right now while we can find plenty of cheap we cannot find much safe. Those that qualify on both counts are in the portfolio and we will hold them. If price do fall closer to that $27 mark we will buy more. There bargains among the carnage but not many of them are financially strong. Those we find we will buy but so far we are not finding much new in the energy patch.

Right now everyone is holding the breath to see what Janet Yellen is going to say at her 5:00 speech. I am going to go take a little nap until the chicken and dumplings are done.

Cheers,

Tim

When investing forget the bulls and bears. Be an https://www.youtube.com/watch?v=a8r4auBtE4g