With the market turmoil, you may have no doubt lost a few months (years?) of your life fretting about your returns. I consider myself a value investor, who is supposed to live for times like this when assets can be purchased at a bargain, but for all that, I've had some heartburn as I've lost as much as 60% on some aggressive mutual funds, and close to 40% on an actively managed (by me) portfolio. But it is a good time to step back and take a look at the bigger picture.
I ran some computer models yesterday, and the risk/return profile has improved considerably due to the recent decline. I hesitate to provide too much information here, because much of it requires qualifiers. I have considered writing a newsletter of sorts, and even wondered if there might be a market for me to sell it at some nominal cost, not as a get-rich scheme, but to incentivize me to develop these ideas further. (Would you buy such a newsletter that focuses on the true investors, and doesn't spit out the same cliches that every mutual fund company does?)
But without getting into specifics, the expected returns from stock investing have moved from "not too much better than savings" a year ago, to offering decent (although not get rich quick) returns. We have no idea what stocks will do from here on - they could fall 5%, 10%, 50%. But that's the wrong question to ask for most investors.
It is also the first time in a while that one of my models suggests a 100% stock stake in my 401k. What? I was not 100% stocks before, even though I have over 30 years to retire? Ah, that's where the conventional advice doled out fails small investors. But that's a story for another day (or a newsletter?)
Now is a time to be a net buyer. I personally will be looking to deploy my (unfortunately very limited) funds in the next 2-3 months. In my own 401k, I have eliminated my future bond allocations and readjusted my allocation to be more aggressive.
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2 comments:
so, this is a good time to buy? i thought so a few months back and bought index funds, thinking the market could only go up. And look at what happened....
As recently as June, the P/E on the S&P 500 was as much as 25. That ratio is now about 17. That's not cheap - but it's a lot better than it has been. I think the market still has a significant downside potential - I'm just saying that for the first time in a lot time, holding through some crazy times might actually be rewarding.
I'd also looking at emerging markets right now. The P/E on some indices have dropped below 10. It won't be a smooth ride - e.g., Israel just crashed 7.5% on Sunday. But over the long-term, buying cheap pays off.
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