If stocks were cheap then, why not now?

behaviorkeltonMarch 9, 2008

Through the entirety of last year, I recall hearing it said... as if it were well understood... that stocks were priced quite nicely/cheaply even after the market occasionally surged.

The market is now down... and then down some more... and it seems that all are running for the hills.

There are tons of articles on the net about "safe havens" for your money. Even CNBC's Kramer seems to be fully bearish.

There is also lots of talk about especially worrisome conditions that could spell doom... consumer debt being one of them.

Still, if stocks were priced reasonably 10 months ago, you'd think that they were REAL reasonable now... wouldn't you?

I have to admit, I am feeling the tide and am inclined to join the lemmings and stay out of the market.

I mentioned this in another post, but every time I go with my gut (joining the lemmings), I have lost money.

Frankly, I'm not seeing *anyone* on CNBC or elsewhere even discussing the notion that we should move in while the get'n is good.

Actually, there are a few key investment decisions that I am pondering:

1. Should I get into the stock market and, possibly, capitalize on a temporary pull back? (even two years is temporary)

2. Should I join the crowd and get out/stay out of the market?...and join them in investing in commodities/precious metals?

3. Should I, intead, look for another house that has a more-than-fair asking price?..and renting my current, very small house instead of selling it. (This is sort of like buying into the stock market while prices are depressed)

4. Just keep the savings in a 3% guaranteed savings account?

Number four is certainly boring, but easy!


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Well-behaved kelton (or is that "confused")?

Well ... "lemming" is a six-letter word (nothing wrong with that, as far as I know) ... and so is "sailor".

Lemmings drown when they hit the sea. Sailors don't - and I've heard that a large number of them can't swim.

They have this protective coating that helps them rise with the water ... trick is ... they manage to stay above it. (Most of the time).

To them, "ship" (or "boat" - take your pick) isn't a four-letter-word (in the ordinary context of that meaning).

It's "safety" (another six-letter-word, for what that's worth).

You heard me promoting the wisdom of (skilfully) investing using stocks, last year.

But you didn't hear me touting last year as a good time to buy, did you?

The major word that you heard from me was "patience" (a double four-letter-word, if you choose), wasn't it?

I've mentioned around here that I've entered the market three times since just before Christmas.

An advisor whose judgement I respect says that his group usually enters the market almost entirely just before Christmas - when the big fund guys are selling their losers to look good.

His 5-year average growth rates vary 16% - 42%: variation 25 (10 year average 19.6 - 29.3: variation under 10 [see how patience pays?]).

I have the wherewithal to enter the market again with cash, which would trouble me if that were the end of my game - I want more arrows in my quiver (to change metaphor).

I have 'em.

I have shares in a company, which includes Canada's largest telco, what used to be called a "widows and orphans" stock. And which owned a large portion of Northern Telecom, which they spun off to shareholders when NorTel price was high, for its market value included pretty well all of theirs, so sharholders in the parent got all of the other parts of their holding pretty well for free.

It's being bought out by a couple of large Canadian pension funds, along with a N Y mergers facilitator, with the deal to close soon, which will put more cash in my jeans for deployment elsewhere.

Ongoing discussion as to whether they'll be offering the originally bruited price (before market drop) ...

... or being shifty - (who would ever accuse corporations of being "shiftless"??) ... somewhat downward.

Trouble is - the shareholders accepted the offer, several months ago ... but there was no mention of the price shift (or is that "shifty")?

In any case - I should have enough for some more entries into the market, if it stays down, or goes lower, or bounces some, before resuming the usual (but not guaranteed) upward climb.

Some years ago the market stayed mostly flat for a bout 10 years (and that was quite a "bout")!

Which might be O.K. for you ...

... but not so hot for me, crowding age 80.

Plus, I have a fully-secured Line of Credit which is sitting unused at the moment, that I can use, if I choose.

And beef up by having more stocks registered, if I choose to pay the $35. - 50. per that the registration costs. I can borrow from the broker at about 1% higher rate than from the bank ... so I need to hold the stock certificate for a while to offset the registry cost by interest saved.

Possibly up to a few entries later - but that would stretch my rubber band pretty tight, if some of my holdings hadn't risen somewhat prior to that ... I wouldn't want to see any razor blades in the vicinity of that band!

The above may lead you to feel that I am probably a multi-milllionaire!

Far from that - I'm far short of even a single one of those!

Good wishes with your investing project.

I've noted that you don't have an email address to enable people to contact you privately. I've been much more forthcoming in the above than I like, would probably have written a substantial portion of it to you privately, had that option been available.

I've been much more forthcoming than many, previously.

You almost didn't get the full amount of this message.

As a matter of fact, on review, I altered some things to be less specific. Not liking to lay that large a portion of my financial picture out on the public table.

ole joyful

    Bookmark   March 10, 2008 at 1:11AM
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Chemocurl zn5b/6a Indiana

There are tons of articles on the net about "safe havens" for your money. Even CNBC's Kramer seems to be fully bearish.
Now this is just a guess, but maybe that was for more short term savings.

  1. Just keep the savings in a 3% guaranteed savings account?
    Yes boring. B4 I would do that with any 'longer' term savings, I'd look for a good solid stock that pays a good dividend. Verizon (VZ) that I retired from has a dividend yield of 4.90%. I'm sure there are better ones though.

Here is a link that might be useful: VZ at Yahoo Finance

    Bookmark   March 10, 2008 at 1:17AM
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Thanks for the input. Dividend stocks could be interesting for some of my savings.

I'm trying to be a good boy and avoid paying off my mortgage.

My bank was paying a CD-like interest rate on the savings account (4.1%), but a few days ago, they cut it down to (3.2%)... this serves to increase my curiousity about other options.

Frankly, it also increases my motivation to pay off my 6.1% mortgage! (the contrast between my mortgage interest and my savings interest is growing wider...to say nothing of investment choices).

So I rambled a bit in that original post .. away from the original subject.

Does anyone remember the talking heads of the past year saying that the market had "attractive valuations" etc. etc.? I'm wondering if that has changed (for the better) given the recent drops.

I sometimes wonder if they are only concerning themselves with day traders as they ruminate on the moment by moment movements of the market.

When they, "I'd wait before re-entering the market"... for what? I don't believe that the market is going to signal us when it's going to start a long term upward climb. Again, I can only guess that the only way to "buy low" is to buy when everything looks grim.

Verizon looks interesting. There is advice out there about "buying what you know"..and I like Verizon. Good service... and there are likely some sweet iPhone competitors coming around the corner (the new Google phone/Android system) which should work nicely with Verizons new "open" policy.

Oh, and I don't see a place to put my e-mail address.

Warren Buffet, I think, said that the best way to make more money is to work more. I have taken the advice and taken some extra work.


    Bookmark   March 10, 2008 at 9:46AM
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behavior kelton,
I would not attempt to tell you what you should do. I will tell you that we are currently in the process of re-allocating hubby's 401K into his IRA. That means that our CFP is "dollar cost averaging" into the market. Result is that right now, about half his IRA is in money market funds and the other half has just been put into mutual funds. Scary? Sure. But we aren't looking at tomorrow's picture - we are looking forward to 10, 15 20 years from now.

    Bookmark   March 10, 2008 at 9:51AM
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Larry Edelman at Money and Markets predicts that "the U.S. dollar will lose another 40% of its value in the next four years." He also says "you won't see a major bottom in the dollar until sometime in 2012. Chief reason: Currencies historically have some of the longest, most durable trends of any market. My long-term studies of currency markets show that up to 90% of bear markets tend to last about 12 years."

I can't for anyone else, but we don't feel like watching our investments drop this much (for this long a period of time) before the market recovers. Nor do we want to be stuck in anything we can't sell because of the investment banks shenanigans of under-the-table trading of subprime products.

We are playing it safe by keeping our investments in areas that have been (and will hopefully remain) unaffected by the subprime mess.

Links that might be useful:

When Cash is Trash, Part II ...

The Credit Collapse of 2008 by Martin D. Weiss, Ph.D.

As Good as Cash, Until It’s Not

    Bookmark   March 10, 2008 at 1:41PM
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Chemocurl zn5b/6a Indiana

Oh, and I don't see a place to put my e-mail address.

To set up your email, just go to the bottom on any page here, and click on Member Pages in the green banner
Then click on Edit your Personal Information, Page, and Preferences
You will then probably be asked to login in again.
Then check the box Allow other users to send you email via forms at our site.

That will place a link on your member page.


    Bookmark   March 10, 2008 at 7:05PM
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It's why dollar-cost averaging works better than trying to time the market (which no one is capable of pulling off on any consistent basis). Studies have been done that show people have a very deep, visceral reaction to what other people are doing or saying about money - hence the "lemming" effect.

We only have one account - my husband's Defined Contribution plans, a 457 and a 401 that consist of the employer's contributions and his own. We set a yearly percentage of his earnings and it gets deducted every month. Up till recently the financial analysis tools have been pretty crude, but lately the investment mgmt firm has seriously upgraded their software and interface - much more user-friendly and a lot easier to track overall performance.

So far in 2008 we're down about 10%, which is what I'd expect based on Bernanke's less than stellar performance and the complete lack of political support, either incumbent or challengers, for a strong dollar. As a liberal, I usually disagree with Steve Forbes, but not on this issue.

Anyhooo, I was on the mgmt website, playing with the new analysis tools. In the great Bull Market of 2003-2006 (remember it ran out of steam in the 4th qtr 2006) I saw our results varied quite a bit year to year - two years were in the 6-8% range, one year was 21%, and 2006 was almost smack on the average at 11%.

It's lower if you go back further, of course, since that would include the Bear Market of 2000-2002. But basically, if I total up the pathetic amount of total contributions over 20 yrs (we're not very good savers and had severe financial problems fifteen years ago), the dollar cost averaging with a very elementary allocation strategy has enabled us, even with the 2008 decline, to more than quadruple that base figure.

Our allocation strategy is a bit more sophisticated these days. But we're also comfortable with more risk, because we realize this money is long-term money, even though my DH will retire in a couple of years. It's very hard to stop paying attention to minor, and even annual, fluctuations in the market - but to succeed, it's really necessary.

    Bookmark   March 10, 2008 at 10:44PM
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Hi again kelton,

Maybe they are cheap now.

Maybe they'll be cheaper later. Maybe you can buy $1.00's worth of value ... for 60 cents.

No one knows when the market will be at absolute bottom - and it's doubtful whether the different segments will all be there at the same time.

So - buy some quality stocks, "on sale" now ... now.

Buy some more later.

Then some more a while after that.

U.S. folks who chose to diversify outside their borders who'd bought some quality Canadian stocks five or six years ago would have gained about 40% on exchange, apart from any dividend income or capital gains realized in the meantime.

Might not be a bad idea now, either, though I think that few expect much extra increase in the CADollar in the short-, possibly medium-term.

Canada supplies more inbound oil to the U.S. than any other out-of-country source. A Canadian pipeline company may be building a line to pump down that Alaskan crude.

Natural gas, also.

Or have a look at, e.g. Global Gains on www.fool.com for an intro to offshore investing. Sprinkle a bit of salt on their hyperbole/enthusiasm.

It's a big old world out there.

Anyone interested to buy some gold mines?

Good wishes for increasingly skillful management of your income and assets.

ole joyful

    Bookmark   March 11, 2008 at 2:20AM
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