June 5, 2018

3M Company: It Didn’t Take A Crystal Ball To See That It Was Overvalued


Regular readers of my work will attest to the fact that I am an avid proponent of valuation. So much so, that I cannot recall writing an article where I didn’t discuss the importance of only investing in a stock when it was fairly-valued, or better yet – undervalued. This obsession with valuation inspired one reader to dub me as “Mr. Valuation.” Frankly, it is a mantle that I covet proudly.  I bring this up for an important reason. Long-running bull markets like we’ve been in since the end of the Great Recession are very difficult markets for value-oriented investors to navigate.


The reasons are simple and straightforward. First, it is very difficult to find attractively valued stocks when investor sentiment is wildly optimistic. Rising stock prices lead to investor overconfidence which often further leads to complacency. Consequently, valuations based on fundamentals, even when they reach dangerous levels, are easily ignored. Rationalizations overtake logic; therefore, bull markets can persist far beyond reason.



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