Stocks On Sale.
Posted on August 10, 2011
Filed Under Investment Strategy, Investor Mistakes, Mutual Funds, Personal Investing
The stock market has tumbled. Financial headlines and talking heads on TV warn of dire developments ahead. And sure enough, a few of our clients called, thinking about selling all their mutual funds and moving to cash.
Is this smart? Well, it may be if a) it lets you sleep at night, or b) you will need to start living off some of your managed money within the next five years.
For me personally, I try to add to my stock market positions when markets falter. That strategy seems to have worked well for the second wealthiest man in America.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
- Warren Buffett
Right now stock market investors are nervous. Many are, to use Buffett’s term, fearful. But if your investment time horizon is at least five years into the future (and I don’t mean that you will retire in five years, but that you will need to start withdrawing money to live on in less than five years), I believe you should consider bear markets to be buying opportunities. Stocks (and stock mutual funds) are on sale.
Yes, they could very well become much cheaper, but the future is unknowable, and you have the certainty of knowing that right now you can buy into the stock market for substantially less than what the world considered a fair price just weeks ago. Those opportunities don’t roll around too often.
I recognize that it takes some serious internal fortitude to jump in when others are bailing out – and yes, it takes some spare cash, which not everyone has right now – but it does appear that Mr. Buffett has done OK by buying when others are selling.
This is, after all, America, and we have always dug ourselves out of holes. We will again, and those who can buy now, or at least stay in the market, will likely be amply rewarded in the years ahead.
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