How would a public swimming pool look like in summer? It would be crowded with people jostling for space and trying to move forward only to hit into each other. The current market seems to be like such a pool. The experience would be ordinary and competitive factors would be intense. The current markets see intense competition among investors to find winning bets. There is little room for maneuver.
However, not all parts of the pool will be crowded. The deep end of the pool will usually have fewer people than the shallow end. People hesitate to go where there are fewer people. And, there are fewer people only where people hesitate to go. This applies as much to the stock markets. A few stocks, themes and sectors have hogged the limelight while much larger and stable businesses have been ignored by the market. In a world where growth is shrinking, investors have shown a tendency to aggressively price growth. There is a competitive tendency to do so. This should be held as a warning.Investors must now invest where others are not willing to crowd and channel their monies into. Essentially, undervalued businesses look more lucrative than the outperforming ones. Valuations always have a tendency to mix things up. Staying invested where the crowds are absent is hardly easy. But, going there and finding their merits should be happening right now.
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” – Warren Buffett