Some of the best trades take time. While the 'buy low, sell high' mentality gave way to the 'buy high, sell higher' style of the dot-com bubble in the late 90’s, conservative value investing seems to be back in fashion on Wall Street. Is it a coincidence that Warren Buffett is a value player?
Another value investor, Whitney Tilson of the hedge fund T2 Partners, explained that he looks for the market to give him opportunities to buy a company he likes at a fraction of the price. This style takes patience, he said, because it involves waiting until the stock you like is out of favor with the broad market. Buying in that environment can take a strong stomach. But if you’re convinced the company is undervalued, buying low and holding on is probably the most reliable way to profit – even if it isn’t fast money.
Tilson used Sears Holdings as an example of a value play that his firm likes. He looked at Sears for the sum of its parts. Although the K-Mart side of the Sears business isn't doing well, Tilson believes other pieces of the company value the whole at two to three times its current price.
Tilson also explained that value investors understand that a stock goes up and down. The question is, when has it gone so low that it’s time to cut the loss. Tilson is constantly reassessing his investments and asking himself: If I didn’t own it would I buy it today?
If the answer is no, it might be time to sell.
> The Traders’ Styles
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Trader disclosure: On Feb.12, 2008, the day of taping, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (INTC), (YHOO), (DIS); Najarian Owns (BIIB), (C), (CSCO), (MCD), (MS), (MSFT), (YHOO), (XLF); Najarian Owns (AAPL) Calls; Najarian Owns (FRE) Puts; Finerman Owns (GS); Finerman's Firm Owns (AAPL), (GE), (MSFT), (WMT), (YHOO); Finerman's Firm And Finerman Own (HD); Finerman's Firm Is Short (SPY), (IJR), (IYR), (MDY), (IWM); Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Seymour Is Short (VIP) Puts