Here's exactly when to buy stocks because valuations are terrible predictors of results, investing chief says
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- Valuations are terrible predictors of future results, BMO's chief investment strategist told Yahoo Finance.
- Instead, investors should watch when companies tighten business operations, like cutting costs.
- For the year ahead, investors should own a "little bit of everything," Brian Belski said.
When debating whether to buy, investors often try to gauge if a stock is priced too high or if it represents a bargain.
But Brian Belski, BMO Capital Markets' chief investment strategist, is having none of that.
"I think the most important thing you're going to be talking about all the time on air is valuation, valuation, valuation. And we have found through our work that valuation, actually in technology specifically, is a terrible predictor of future results," Belski told Yahoo Finance, adding that tech isn't near a bubble anyway.
Over a timeframe of five to 10 years, valuation may be a better indicator, but not over one to two years, he said.
Instead, investors should jump in when companies tighten their business operations. For example, firms like Google and Amazon announced several layoffs to cut down on costs, and that's a buy signal for Belski.
"Everyone likes to beat up Apple," he said. "Guess what I've learned — you buy Apple when it goes down. You talked about Google and Amazon cutting costs. That's exactly when you want to buy stocks: when they cut costs."
Similarly, when Wall Street banks cut costs, that was another time to buy those shares, he said.
"So you want to buy companies when they 'get religion,' become tighter with respect to how they're running their businesses," he added.
In tech specifically, markets have been wondering whether the "Magnificent Seven" can repeat their magnificent gains from 2023, when valuations more than doubled or even tripled.
And as tech started the year on a wobbly footing, traders wondered whether more troubles were down the line and if their valuations had gone too far.
But 80% of the time, a boom year in tech is followed by another year of positive gains, Belski said.
As a result, he urged investors to have exposure to tech and financials, saying investors this year should own a "little bit of everything."
"You need to be in value, you need to be in growth, you need to be in dividend growth, you need to be in small cap," he said.