Value Investing Today Pt. 3
Today's value investors also find opportunity in the stocks and bonds of companies stigmatized on Wall Street because of involvement in protracted litigation, scandal, accounting fraud, or financial distress. The securities of such companies sometimes trade down to bargain levels, where they become good investments for those who are able to remain stalwart in the face of bad news.
—Seth A. Klarman, The Timeless Wisdom of Graham and Dodd
More generally, companies that disappoint or surprise investors with lower-than-expected results, sudden management changes, accounting problems, or ratings downgrades are more likely than consistently strong performers to be sources of opportunity.
When bargains are scare, value investors must be patient; compromising standards is a slippery slope to disaster. New opportunities will emerge, even if we don't know when or where. In the absence of compelling opportunity, holding at least a portion of one's portfolio in cash equivalents (for example, U.S. Treasury bills) awaiting future deployment will sometimes be the most sensible option.
