We Aren’t Watches, So We Shouldn’t Be Timing Things
Many economists are finally starting to use the “recession” word to describe the U.S. economy. Almost daily, someone is calling the bottom of the market. And many investors are sitting on the sidelines with their money until this magical moment is actually reached.
Just one problem: We won’t know when the bottom of the market happens until it has already happened. By then, prices will be on the upswing, and the opportunities to buy at fire sale prices will be gone. Kind of like what’s happening with the housing market. Many buyers out there are saying that they are waiting to purchase until prices come down more. What if they have already come down as far as they are going to go? We won’t know for certain where the bottom is until it is months behind us.
If, right now, you have the opportunity to buy a great company at a ridiculously low price, you should be taking advantage of it. Trying to save that extra few dollars a share by trying to perfectly time the bottom doesn’t make sense in the long run.
Take Microsoft, for example. It is currently around $28 /share. If you buy now and sell at $40 /share when the market rebounds, you will have a return of approximately 43 percent. If you wait for it to drop to $26 /share and sell at $40 /share, your return would be 53 percent instead of 43 percent. Great! That is a 10 percent increase in your rate of return. But what if Microsoft never gets cheaper than $28 /share? What if that is the cheapest it will trade for during this “recession”? Then you will have to buy it at $30 /share. Or maybe $32 / share. And then your returns will be only 33 percent or 25 percent.
Instead of trying to time the bottom, you should be buying the stocks of great companies now. Opportunities to buy them at current prices don’t come along very often. Take advantage of it.
[Ed. Note: Rick’s takeaway today? Don’t try to predict the market’s bottom. Sounds simple enough, right? Turns out that a LOT of investing rules are just as easy to follow. In fact, Rick’s new KISS trading service relies on principles like this – so simple, a fifth-grader could understand them.]Rick Pendergraft
Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.