I’m sorry, but I have to step in with a contrary opinion. I see so much here about waiting for a further slump before taking a position, as if certain statistics or other figures will let you know when is a good time. If it’s “obvious” that it’s a good time it won’t be a good time. Here’s what I wrote back on March 11 when everyone was saying the market was going into a correction and there was a lot of pessimism in the air (this post won a MF Post of the Day):
"What are my preparations for the next market drop. That’s easy. I don’t try to time the market and I stay fully invested. I try to pick good, really excellent companies, whose stocks don’t have a long way to fall if things turn bad. In other words, companies that have a lot of growth, and whose stocks are reasonably priced with reasonable PE ratios.
Why don’t I try to time the market? Because the experts can’t do it, so why should I think I can do it. I remember vividly, in November 2008, an economic expert forecaster being interviewed on one of the financial channels, and being asked what positions he’d recommend the viewers being in at that time, and he famously replied, “Cash, and the fetal position”. Everyone thought he was so clever, but he was totally, absolutely, completely WRONG! It was the bottom and people should have been 100% in stocks. But he was influenced by the panic in the air at that time. And he wasn’t the only one. They all said “Sell out of stocks”.
There are people saying “Watch out for a market crash this year!” The only trouble is that they said that last year too, and in 2013, 2012, and 2011. And in 2010 they were warning about a “Double Dip Recession”. Eventually they will be right, or partially right. Even a stopped clock is right twice a day.
Given all that, and that no one can forecast the market, here’s my attempt to do so. Sure this has been a long Bull market. But this isn’t a market that charged out of the Great Recession (like a bull, so to speak). It has inched its way up slowly, climbing a wall of worry all the way. And it had, and could still have a long way to go. Does this feel like a frothy market top? Do you hear any euphoria? Have you heard anyone calling for a massive market rise, anyone at all? Does everyone seem worried about one thing or another? And the market keeps inching up. The economy is growing, unemployment is falling, employment is rising, there’s no inflation, NO inflation, and no wage inflation. The market usually continues to rise for two years after the Fed starts raising rates, and they haven’t even started yet. Give me a break. Relax and have fun investing. Sure, a correction will come along sometime, but we’ll all live through it."
I was up 24% so far this year when I wrote that. I stayed fully invested. Now, after a real correction, I’m up 30% on the year (and have been up as much as 50% before the correction). Should I have gone partly into cash to prepare for the correction? You figure it out.
Here are my thoughts about taking a position. This is directly from the Knowledgebase:
"Never miss getting into a stock because you are waiting to buy it a few cents cheaper. The decision is whether you want to invest in it or not. Once you decide, take a starter position, at least. Don’t wait around for a slightly better price. When it’s at $50, I can guarantee that you won’t remember or care whether you paid $10.05 or $10.30, but you’ll be kicking yourself if you didn’t get in. The issue is: Do you want to buy the stock? If the answer is yes, don’t fool around trying to buy it a bit cheaper. You are buying with a long-term perspective.
**I assume that any good stock I might want to buy probably traded at a lower price some time before I found out about them…**Duh… But so what? I can’t go back and buy them in the past. What I care about is whether the stock is a good buy now. I see too many people who are “waiting” for a price to go back to where it had been, for a lower price, a better buy in point, or whatever. They may get it and save a dollar or two, or they may not get it and miss a $50 eventual rise in the stock. Don’t try to wait for a price slump before getting in to a company. If you like it and are convinced, at least take a starter position now.
Never miss getting into a stock because you are waiting to buy it cheaper. The decision is whether you want to invest in it or not. Once you decide, take a starter position, at least. Don’t wait around for a slightly better price. When it’s at $50, I can guarantee that you won’t remember or care whether you paid $10.05 or $10.30, but you’ll be kicking yourself if you didn’t get in. The issue is: Do you want to buy the stock? If the answer is yes, don’t fool around trying to buy it a bit cheaper. You are buying with a long-term perspective."
Here’s what can happen. A simple example. BOFI was up about $133.45 two months ago. Then someone wrote a series of very effective short articles and by a month ago the price had fallen to roughly $105.50 and people were selling their positions (I sold a piece of mine), they were talking about waiting until they were sure before they’d get back in, or about waiting until the price was down to $80 or $85 for “good value”. Guess what? A definitive piece of good news happened along, in the shape of a simple talk by the CEO. A week later the price had risen to $118 from $105, and it’s continued up in spite of this market correction, and closed today at roughly $130.00 (very close to that high). (I bought back at $108, $112, and a tiny bit at $117, but the rise happened very quickly. That was over a day or two. The people who waited for a lower price are still waiting.)
Now Skechers has fallen from $160 two months ago to about $133 now. There has been NO bad news. There hasn’t even been a short attack. It’s got a PE of 30.5 and it’s growing TTM earnings at 107% year-over-year as of the last quarter. That gives it a 1YPEG of 0.29 — That’s ZERO point TWO NINE ! What piece of good news could do the same thing for them that happened to Bofi? Who knows? But how about a simple earnings report?
The recent recommendation highlighted all the embarrassments the company had a few years ago before they got their act together. If you consider the PE and other values the company had at those high stress times to be “historical” average values, sure you can say that it’s overvalued or fairly valued now. But if you look at the company as it is NOW, all I can say is that this company is going wild, expanding their brand and their sales, and their margins, and their earnings. If you like it, and want to buy it, take at least a starter position now, because when it’s up $5 you’ll wait for it to come back to where it is now, and if it does come back you’ll wait for it to go lower, and then, all of a sudden, it will be up $20 and you’ll have never taken that initial position.
JMO
Best to you all,
Saul
