In the column in question I also implied that a potential investor should ask what is wrong with a stock priced below book, so technically I covered the need to be cautious, but upon further consideration I wish to make a couple of clear, concise statements:
- Don't buy a stock just because it's cheap.
- Don't buy a stock just because it's priced below book.
The reason for this sudden outburst of clarity is that I have, in the past, bought stocks because they were under-valued, and it didn't work out terribly well for me. I don't want to give my readers the idea that this is an investment strategy that I still actively follow.
At least, I don't think I do. For my most recent investments I don't know, off the top of my head, what the price per book was for each of them at the time of purchase.
But this is the age of the inter-tubes, and with a little research I've come up with the following:
The Book Value in the chart above is the book value per share as of the most recent quarterly report before the day I purchased my shares. In some cases the book value has changed since that time.
Most notably, the book value for Sigma Designs (SIGM) is significantly lower, now, than it was when I bought it. For that matter, so is the price per share. As of this writing the book value is $8.13 per share, but the price is $5.52 per share. The upshot is that the price per book is about the same now as it was then.
Basically, the most "under-valued" stock that I purchased has been the biggest loser for me. The only loser, actually. All the rest of the stocks in the chart above have performed quite well. The "bargain" stock hasn't.
Upon reflection, the least I can do is try to warn my loyal readers - both of them - away from a course of action to which I may have inadvertently led them. Hence the clarification.
Caveat emptor, and let's be careful out there.
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