The markets have not done well lately….the TSX in particular has gone down from around 15,000 points down to a bit less than 10,000 points as I wrote this (one week ago). Hopefully there will be some stunning rallies and we will all get a good laugh out of this outdated post!
I have to admit I’m handling the market drops much better than back in 2001 when I was switching out of equities – only to miss out on some of the increase which followed. However my dog-eared copy of Four Pillars of Investing – “Stay invested in equities” – is now getting a bit drooled on since I’ve taken to sleeping with it under my pillow. Bernstein’s wonderful book is the best way to put things in perspective – there have been much bigger drops than we have experienced and the market has always come back. Also – it’s too late to do anything if you are still invested – just ride it out.
Another idea I’ve heard around the blogosphere is that now is a good time to buy. While I don’t think that stocks are necessarily cheap (were internet stocks “cheap” in 2002?), the investment gods all say to buy when things look their darkest. Problem is that it has been dark for a while – will it get worse? Who knows? But the markets will come back – it just might take a while.
For those of us who are fully invested or just don’t want to buy anything right now – keep in mind that not selling is the same as buying. Not selling right now is a vote of confidence for your inability to time the market which nobody can do accurately over the long haul.
Stocks with earnings and stable earnings potential are cheap. The kicker is determining how earnings will hold up. Also I believe that some stocks with earnings that are vulnerable to a recession are oversold and are long-term buys. Stocks with poor earnings potential and no dividends are not cheap and I agree that you could compare it to tech. stocks in the net bubble.
As with you I am a big fan of Bernstein’s book Four Pillars.. I am fully invested in Index Funds, including TSX60, MSCI Global, and S&P500 Index’s and taking a whacking! But I’m staying the course, keeping up my monthy contributions.
I have been watching Bernstein’s site for updates and comments on this mess, but he has been silent – have you seen or hear any comments from him lately?
Why do you think stocks aren’t cheap now? The S&P 500 forward p/e is 14 even after the cut in earnings forecasts. Of course, stocks could fall even more but until they discover a bell that rings when the bottom is precisely reached, all we can do is keep investing when valuations are at least reasonable.
Well, stocks could always get cheaper of course.. Luckily most investors do their purchases once/twice a month from paychecks, so they don’t load up on “cheap stocks” prematurely..
I agree with the moneygardener however that most dividend aristocrats stocks are cheap. I still shave even during a recession. ( I still eat as well and shop at a retail store)
boca – I haven’t seen anything from Bernstein in a while. You would think now would be his time to shine.
CC – a lot of financial companies were valued based on their assets – which in some cases turned out to be worth a lot less than original assumed. The stock price is down and it isn’t on sale. Of course this doesn’t apply to all companies.
Hey Mike I just tried to send you a message from the “email us” form on your page but the form kept coming back so I suspect the page is broken. If you haven’t gotten my comment please contact me and I’ll send it directly.
Interesting take on not selling. Although it doesn’t have the same impact on a stock’s price as buying, there is some correlation.