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Tuesday, May 3, 2011

What to do in an expensive market?

During the historic 2000 bubble, Buffett had his money invested in REITS
I have less than 1% of my net worth outside Berkshire and when the Nasdaq hit its high, I had nearly all of it in REITs, which were selling at a discount to their liquidation values.

BRK Annual Meeting 2005 Tilson Notes, via http://buffettfaq.com/

Which is interesting since if you would never put money in the stock market if you based your decision on over market valuations. Yet, there you had it, a whole industry of securities was dirt cheap in the height of the NASDAQ bubble.

So fast forward to today and if you were Shiller, you would once again say the stock market is over valued and stocks as part of your portfolio should be light. Yet, I think you would be making the same mistake again.  By bypassing today's market you'd also be bypassing some great values in Blue Chips, especially Old Tech companies like Microsoft, Intel, Johnson and Johnson and Cisco.

I am not saying anything new here to be honest. Lots of value investors have been saying Blue chips are cheap. Yet, I am just trying to come to terms with two thoughts. One, if the market is generally over valued it's time to be cautious and have a larger stock pile of cash, and two, bypassing great values because everything else is expensive is just as stupid as passing up the 10 cent bananas because the apples are selling for five dollars a piece.

No one likes buying in an expensive market, but maybe we just need to hold our nose. Heck, even Buffett thinks Microsoft is cheap.

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