Friday, August 05, 2011

The Stock Market and a New Opportunity

For about a year now I have been feeling uneasy about the stock market. Things just seemed to be too good. About a year ago I stopped putting new money into stocks, and although money markets were basically yielding nothing, I kept putting more and more money into that asset class. Now it appears that some of the storm clouds have burst open and the market has taken a hammering this week, reminiscent of some of the worst of the 2008 meltdown. Having said this, unlike in 2008, I am not feeling a sense of impending doom. I am actually optimistic about the prospects for the US economy, now that the insane debt ceiling crisis has been resolved for the time being (may the Tea Party idiots pay the price at the polls).

Don't get me wrong, I think we are in for a little bit of a bear market, but my point is that if the market declines another 5% or 10% I will start reinvesting money in stocks. Not large amounts, and not crazy bets, but a fixed, measured amount of money going into index funds every month. I followed this strategy during the worst of the 2008 stock market collapse and it yielded outstanding returns. When everyone flees the market, that's when I feel the time is right for sober, calm investors to slowly but surely wade in. Yes, short term losses can be severe, but over a period of years, buying in a stock market bear market is a fantastic opportunity.

I love buying things on sale. :-)

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9 comments:

Anonymous said...

so basically an entry-point at around 1000 for SnP500? Or would you base it on the PE10 instead? I was afraid to buy during March 2009 because the PE10 was at around 15. Based on what happened in 1981, I figured a true bottom would be PE10 of 7 and also div.yield of 7. Do you think we will ever see valuations this low in our lifetimes? Any thoughts?

Michelle Parker said...

Good post!

Rob Bennett said...

I am not a fan of Buy-and-Hold. But one thing I very much like about the approach is that it is rooted in objective data rather than subjective feelings. I get nervous when people say "it doesn't feel like such and such." I just don't trust my feelings to tell it to me straight when it comes to investing!

I do believe that we will see a P/E10 of 7. Actually, if you go by the data, we may see a P/E10 lower than that. The higher the P/E10 value goes in a bull market, the lower it goes in the bear market that follows. We saw the highest P/E10 value in history (by a wide margin) in January 2000.

Rob

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Nick Jacobs said...
This comment has been removed by the author.
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Stocks are near old highs, be careful!

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