WHY INVEST WHEN MARKET IS DOWN
September 10th 2008 00:00
As usual, this post is being written by a market newbie. By that, I mean this is not a recommendation of any kind, just an expression of opinion by a new investor and the readers are therefore forewarned.
This has to do with my previous post (A Buy Signal) where I opined that rather than lose part of my disposable income, or a little savings, in some mindless purchases (that dang Netbook computer with 8.9 inch screen is always tugging at my sleeves to visit the malls), I would rather select my stocks now, when the majority is scared to buy, since by doing so now I will have a better chance of cornering some valuable stocks at a lower price.
That is the same advice given by market gurus (to buy when nobody wants to buy) who have proven the theory right by being able to amass enormous wealth themselves by using the same theory. Of course, they are not the only ones who are able to accumulate vast sums of money, and theirs are not the only effective theories.
So, why am I agreeing with those who said that I should buy my stocks when the market is down? I think the simple answer is: Because it is not easy to buy good stocks at a low price when the market is up.
Let me try to illustrate. There is this stock that I will call FFF (for purposes of this discussion) that I wanted to buy sometime in 2006 at the price of P38. I was fully invested at the time so I tried to save up for that stock. By the time I got the money the price has already climbed to P46 and I wondered if it wasn’t already expensive at that level.
I waited for some correction to happen but instead of going down the price just continued to go up. Not in some dramatic way like a spike but a gradual rise that went all the way up to P55.
The only time the price of that stock went down was when everything else was going down. I think the lowest it went was P33 and this was when everyone was just dumping everything they got. Of course, there was a lot of talk about “uncertainties” and the possibilities of the market falling “even deeper” and thus, I just looked longingly at that particular stock, which for a while lingered at P34.
There are still a lot of talks about market uncertainties these days… and the bad news are spreading all the way to Germany and London because of credit crunch… Consumer confidence in the US is down and people in the US are still losing jobs…
The price of oil is continuously going down and Fannie Mae and Freddie Mac were taken over by the US government…as a result of that the Dow rallied big time the night before I wrote this, yet one day later, the market plunge again on the concerns about stability of Lehman Brothers.
And guess what? The price of the stock I was watching went back to P44 then settled at P43!
If I am not buying when the market is down, when am I going to buy? Again, let me say that this is a market newbie’s opinion. And compared to the experts… what is a newbie’s opinion?
But like in the case of Hurricane Gustav and Hurricane Ike, the effects of Fannie Mae and Freddie Mac to the market (when taken over by the government) and the cyclical economic conditions, no one can really tell when a good news or a bad news is coming, and no one can really say when the market will turn.
So, given all of the above, this market newbie thinks that there is a good reason to invest even when the market is down.
This has to do with my previous post (A Buy Signal) where I opined that rather than lose part of my disposable income, or a little savings, in some mindless purchases (that dang Netbook computer with 8.9 inch screen is always tugging at my sleeves to visit the malls), I would rather select my stocks now, when the majority is scared to buy, since by doing so now I will have a better chance of cornering some valuable stocks at a lower price.
To break or not to break pic source: Wikipedia
That is the same advice given by market gurus (to buy when nobody wants to buy) who have proven the theory right by being able to amass enormous wealth themselves by using the same theory. Of course, they are not the only ones who are able to accumulate vast sums of money, and theirs are not the only effective theories.
So, why am I agreeing with those who said that I should buy my stocks when the market is down? I think the simple answer is: Because it is not easy to buy good stocks at a low price when the market is up.
Let me try to illustrate. There is this stock that I will call FFF (for purposes of this discussion) that I wanted to buy sometime in 2006 at the price of P38. I was fully invested at the time so I tried to save up for that stock. By the time I got the money the price has already climbed to P46 and I wondered if it wasn’t already expensive at that level.
I waited for some correction to happen but instead of going down the price just continued to go up. Not in some dramatic way like a spike but a gradual rise that went all the way up to P55.
The only time the price of that stock went down was when everything else was going down. I think the lowest it went was P33 and this was when everyone was just dumping everything they got. Of course, there was a lot of talk about “uncertainties” and the possibilities of the market falling “even deeper” and thus, I just looked longingly at that particular stock, which for a while lingered at P34.
There are still a lot of talks about market uncertainties these days… and the bad news are spreading all the way to Germany and London because of credit crunch… Consumer confidence in the US is down and people in the US are still losing jobs…
The price of oil is continuously going down and Fannie Mae and Freddie Mac were taken over by the US government…as a result of that the Dow rallied big time the night before I wrote this, yet one day later, the market plunge again on the concerns about stability of Lehman Brothers.
And guess what? The price of the stock I was watching went back to P44 then settled at P43!
If I am not buying when the market is down, when am I going to buy? Again, let me say that this is a market newbie’s opinion. And compared to the experts… what is a newbie’s opinion?
But like in the case of Hurricane Gustav and Hurricane Ike, the effects of Fannie Mae and Freddie Mac to the market (when taken over by the government) and the cyclical economic conditions, no one can really tell when a good news or a bad news is coming, and no one can really say when the market will turn.
So, given all of the above, this market newbie thinks that there is a good reason to invest even when the market is down.
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Comment by British Bulldog
Having seen the Fannie Freddie rally reverse in one day, then see a wobbly session yesterday night and now US futures well down tonight, I suspect another 'manic' September sell off is upon us and so any Phill investors may be well advised to sell their stocks on the 20% gain they made the last few weeks as it may well be that by the end of September the PSE is back down to 2,200, despite oil down to 101 as I write.
I've been wrong before but I have put my money where my mouth is and increased my short postions in the US market.
Regards,
British Bulldog.
Comment by British Bulldog
Yes I'm in 'know all, told you so' mood so reflect that as I own shares of Lehman Bros and Merrill Lynch and previously Bear Sterns ( 5th largest US investment bank, now owned by JP Morgan) I'm in no mood for any kind of feelings of superior knowledge and judgement.
News over the week end indicates Lehman Bros ( 4th largest US investment bank) bankruptcy, Merrill's (3rd largest investment bank)demise also into the hands of Bank of America, AIG ( the world's largest insurer) in deperate straits and Washingtom mutual ( the largest US savings and loan co) in a likely end game. Oil wil probably rise today as the dollar weakens though it is curently at 99$!!
This will mean absolute slaughter in the markets early this week. Tongiht's US futures are already down 2% and the numbers 1 and 2 US investment banks Goldman Sachs and Morgan Stanley report 2nd quarter results this week that are likely to be ugly.
I suggest all of you liquidate your PSE holdings, scrape together what cash you can and then go to the JP Morgan office in the Ayala district and buy Goldman and Morgan as they'll be incredibly cheap this week and their US competition is being eliminated!!!!
You should also buy JP Morgan as they got Bear for 'peanuts' in March and Bank of America who have alrerady aquired Countrywide the largest US real estate broker earlier this year and now will end up with Merill. These franchises will not only be very cheap this week but will also be very powerful over the coming years, pay great dividends and double in value over the next few years. I own all the banks above so my money is wehre my mouth is. I also own a financial short to cover me for2/3 of my losses.
Good Luck,
Regards,
British Bulldog