Value investors like to buy undervalued securities, and one of the best places to find them is in a well known area of distress. The European equities, as a group, is precisely that area.
As we all know, the European sovereign debt issue has been going on for a long time, but has not shown any signs of going away. The squabbling European governments have squandered golden opportunities to make hard decisions early in the crisis to avoid catastrophe. To this day, the public discussion in places like Germany is that this is a problem created by profligate Greeks, and they should be punished. There is absolute denial that countries like Greece are actually insolvent (due to fear of contagion) and they continue to treat this as a liquidity problem. Consequently, they are giving the Greek government money while imposing austerity (read: punishment). Fixes for liquidity issues, do not solve liquidity problems.
While this denial is going on in Germany, and rest of European countries, the problem is getting quite worse. Greece has finally reached a point where it has less than a month before it has to, most likely, default-- and since this acute public denial exists in rest of Europe, I strongly suspect, it is going to be a messy default.
I suspect that once the default happens, the European equity market will sell off in a large way. Some European equities that are cheap today, will likely become incredibly cheap. That will be the time for value investors to step in.
In the meantime, I encourage my fellow value investors to start making a wish-list of European businesses with strong balance sheets (even if it is in Euros), excellent cash flows and wide economic moats.
This may be once in a lifetime opportunity.
