I don’t know if other folks do this, but every time I buy a stock I stop to double guess myself. If I see a stock that looks FANTASTIC, good P/E, good dividend, good growth, it may seem like a perfect buy. But I always stop and ask myself “if it’s such a great buy, why isn’t everyone else buying it, why hasn’t the price been pushed up?” Usually this leads me to double checking and realizing the reasons which I had not previously noticed. For instance, it was pointed out to me that Big Box retail stores are very highly valued right now, Walmart is selling at a higher P/E than Microsoft and Apple just for example. It seems that in the current economy, people are looking for the security of retails rather than the growth of Tech. But there’s no way Walmart is worth about 50 P/E, so it doesn’t make sense to buy it at this price point. Macy’s however ($M) is selling at just around 8 P/E. It’s a big box retailer with steady cash flow, doesn’t it look like a perfect buy? But why is it selling so low and Walmart is selling so high? I looked and Macy’s forward P/E isn’t so good, it’s expected to be around 10 or 12. So it looks like right now Macy’s is expected to be a shrinking company, and that’s why it’s being sold on discount. So now I have a better idea of exactly what bet I’m making, do I expect Macy’s P/E to go down that much or might they buck the trend and remain stable or grow? That will tell me whether I actually want to buy their stock or not.

In a market as efficient as the stock market, there are rarely any free 20$ bills on the sidewalk, you always have to wonder “if this move makes sense then why isn’t everyone doing it?” and that will make you realize the downsides of the bet you’re making.