22 January 2008

Buy!

It's possible that the markets are going to drop by another 10% to 15% in the next few months. You can smell the fear and frustration. But here's the one sure thing: if you are saving for a retirement that is more than five or ten years out, this is a great time to buy. Phase your purchases over the next 2 to 6 months, but get in now. When stock prices drop by 20%, everyone panics and flees the market. When shoes drop by 20%, they call it a sale and people flock to buy. ("Hey! They're having a sale on Wall Street!") If you buy tomorrow, you may well lose some money in the next month or two. But you will buy for less than if you wait until the market has recovered and again looks like a sure deal.

There are at least two good reasons to buy stock that aren't often mentioned. One, there are trillions of dollars seeking returns. Quite simply, where else will that go? Options like real estate and commodities and bonds are not really much better. Two, too often the prospects for the American economy and American companies are conflated. A growing percentage of sales come from abroad. Investing in multinationals represents an investment in the global economy, regardless of where the stock is listed. Both of these seem like strong arguments for long-term investment (which is what any of us building retirement accounts are up to).

Andrew Jackson may have been a populist who closed the central bank, but his advice could hold for investors: wait until you see the whites of their eyes. Investors are wide-eyed panicked. Now is not a bad time to buy.

7 comments:

cce said...

If only I had a dime to spend. It takes a brave gambler to step up now but I'd do it if I could. Or would this sort of expenditure fly in the face of my commitment to avoid needless spending?

Lifehiker said...

Good advice, but it takes guts to do it, just like it took guts to wait "until you see the whites of their eyes".

I've got a few dimes to invest. Maybe I'll start the program today!

Ron Davison said...

cce,
just treat it like you would an unscheduled car repair.

LH,
let me know what you grab?

Anonymous said...

"buy when the blood is running in the streets," Nathan Rothschild

Ron Davison said...

anon,
Nathan is one of my heroes - guy who helped to invent the role of international banker. (And, yes, you're right to point out that I'm merely repeating advice that's a couple of hundred years old.)

daffy said...

I just pressed your link (!) when I saw you over at ThomasLBs place and although I know nothing of investment and finance I did notice we had something in common!
You have excellent taste in music sir. So where I will never be able to debate either of our countrys' economic state I would be able to yadder on about Van,Peter Gabriel, Talking Heads, Neil Young, Tom Waits and Elvis Costello. :o)
I saw Van Morrison last December and I was a little disappointed. No Charisma. I saw Elvis Costello back in 1992/3 and I fell in love with the dude in a purple velvet suit and frilly white shirt.
Sorry to come over here and immediately go off topic. :o)

Ron Davison said...

Daffy,
Welcome to R World. You, too, have great taste in music. :)