CLARKONOMICS: At a time when the world financial markets are in tumult, I believe this represents the best buying opportunity for stocks.
We could sit and talk selves into anxiety about all the problems in the world on any given day. There’s a lot of fear in Europe about Greece, Italy, Portugal, Spain and Ireland. Meanwhile, U.S. unemployment numbers are looking bad. Plus, there’s a new report that the Chinese economy is growing slower than expected.
I could go on and on about the dismal economic news and that’s without even talking about security and safety issues, revolutions and wars!
You can psych yourself out with risk at anytime of any day by picking up any newspaper. That’s because bad news is what makes the news. I don’t want to sugarcoat it and say that we’re in great times; we’re not. But I do want to point out that when people are afraid, that’s when the greatest long-term money is made.
Stocks on deep discount right now
Capitalism is so resilient because capitalists adjust and adapt to changing market conditions. How else can you explain that corporations are still reporting very nice profits in the midst of the fourth year of a rotten economy in the United States?
Of course, those profits may not be as large moving forward. But I saw a Barron’s chart detailing how company after company that is reporting very big profits right now is seeing its stock sell for less than what it was 10 years ago.
We’re talking big names here, like Intel, Microsoft, Amgen, Cisco Systems, Texas Instruments and JPMorgan Chase, to name a few.
Yet people are afraid of stocks, even though they’re essentially on deep discount right now. You have individuals running from international investments. That’s not the right move in my book.
The Turtle preaches the three Ds of investing
Just look back at history for proof of what I’m saying. Remember when there was panic on Wall Street and stock markets were going a through a bear market that bottomed out a few years ago?
Well, those people that stayed in over time have seen a fantastic return on their money. On the other hand, those who sold tended to sell at the wrong moment, and then they decided it was safe to get back in when values had already recovered.
So they lost their shirts on the way out and missed the run-up in value on the way back in. Unfortunately, that’s just the way human nature works.
When it comes to investing, I am the Turtle. I just plod along at my own pace and keep my eye on the finish line, while minding the three Ds of investing:
- Dull (basic meat-and-potatoes investing like mutual funds and index funds, nothing fancy)
- Diversified (a broad portfolio with both domestic and international investments)
- Dollar cost averaging (put equal amounts of money into the market each pay period through a 401(k) or other retirement plan)
I believe this is a time that creates opportunity. Will stocks go further down from here? They could. They could crater. But I don’t care because I keep my eye on the prize and that’s down the road. You should too. Don’t take on people’s negative energy and let that take you off your target.
Editor’s note: This segment originally aired Sept. 7, 2011