Buying Opportunity for Mutual Funds?

Posted on January 31, 2012

Filed Under 401K, ETFs, Fidelity Funds, Investment Strategy, Mutual Funds, Personal Investing

The best time to invest is when others won’t.  Now appears to be one of those times.

Stocks, by at least one historical yardstick, appear cheap. Specifically, the stocks that comprise the Standard & Poor’s 500 Index are trading at 13.7 times profits; that is a terrific number when compared to the historical average of 16.4 (from 1954 to the present). Importantly, stocks have remained below that average for more than a year. According to an article at Bloomberg.com, you would have to go back to the Nixon administration to find a time when valuations were this low for such an extended period.

What’s causing this unusual situation? It appears that after the stock market turmoil of the past few years, millions of investors are gun shy. As the article says, “Battered by the 14 percent decline in the S&P 500 since 2000, the worst financial crisis since the Great Depression and the so-called flash crash 21 months ago, investors are staying away from stocks, even after record profits, 10 quarters of U.S. economic growth and promises by the Federal Reserve to keep interest rates near zero through 2014.”

From my perspective as an Investment Advisor, I also see far too much fear about the short term, without an appreciation for the long term prospects.

This period of stocks selling at what might be called “sale” prices won’t last forever. A low valuation certainly does not guarantee instant profits, but speaking for myself, I surely would rather buy when everyone else is selling. Or, at least, scared to buy.

 


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