Is it time to bottom fish or are we looking for lower prices still?
I don't want to be the guy trying to catch a falling knife. So I read this post yesterday on a blog I frequent:
http://traderfeed.blogspot.com/2008/01/tracking-stock-market-weakness.html
and the author argues that even though we saw prices drop, they dropped on weak momentum which doesn't indicate we'll be seeing any kind of short term (or longer term) bounce. He insists we wait for lower prices.
Thoughts?
Answers
3963 points
MNSL answered one year ago …
I think it is too early to pick stocks in the market. It is better to wait till markets become calm down. If we can see prices are going up together with volume then we can take position. I think fundamentals and sentiments should improve.
However we must not forget there are opportunities in all type of markets. If you can use other hedge instruments, option, futures etc still you can make money.
Intelligent investors know how to make money in both up and down market. We must not forget there are different types of investors. Some like to invest in stocks when there is bad sentiment in the market. In addition there are long term investors they are waiting for outstanding companies for bargain price.
I still think no sooner they come out of present problem there will be great opportunities for investors. I noticed even in bear markets some stocks have performed better than during bull market through out the world. Main thing is we must have correct stocks in our portfolio. Then we don’t to worry about recession, bear market etc
357 points
SharonMR answered one year ago …
Have to agree with MNSL, sit tight for the time being. Waiting for a confirmed buy will still make for great profits. It's not far off in the future. Keep an eye on the internal indicators.
However, if you truly have an itchy finger, the Healthcare sector has recently come into a buy signal.
4085 points
EthanR answered one year ago …
Dave, I think it depends on how short or long term is your horizon. The last two days presented fantastic opportunities for day trading, simply by buyng the 9:45-10:00 AM lows and selling later in the day. But buying for the intermediate term right now could be rather risky, especially given the internal fundamentals, as described in the blog link you provided.
Now, if you are a long term investor, one who holds good stocks for several years, I say go fishing right now! Buy the very beaten down financials, retailers, and REITS and don't worry if they go down another 10% or even 20% before they finally bottom. Buy your positions slowly over a couple of weeks if you want to reduce your risk. Dollar cost average into mutual funds or ETF's, through a discount broker. If you are comfortable with options, then use them to reduce your risk as well.
Let me ask you this- Did you buy any stocks the day after the market crashed in 1987? Most people did not. Think how many news stories were written that day, advising people to wait for lower prices. Now follow up question: Of the people who did buy stocks the day after the '87 crash, do you think they were poorer or richer 10 years later?
People will line up around the block to buy furniture for 20% off when a store is going out of business. But when the stock market is down 20%, it's hard to find anybody who wants to buy some stock.
2775 points
Oldman answered one year ago …
On October 15th, 1987, I exchanged about 30K in my 403(b) with Fidelity, to Cash Reserves, and then, when the market was deteriorating still further, I closed out the rest on the Friday before that "Crash". On the day after the crash, I redeposited the funds into other mutual funds, withholding about 12K (ca. 10% of the 403(b) at the time). Boy, did I feel smug ...but the market meandered and didn't really begin to grow again until Dec. 1987. I was probably about 2 days too early in redepositing. Today, one couldn't do that...because of short-term trading regulations on the Fidelity funds. Also, at that time, there were no fees or brokerage costs in that account.
I was LUCKY, that time. I've never tried to time the market since. When Ivan Boesky was indicted, I put some money in to take advantage of a brief dip, and in 1994 I used a downturn to put some cash into funds.
In 2000 - 2003, fortunately, a lot of my holdings had now been diversified ... not just in funds, but also into stocks, and they were mostly utilities and REITS.
Still, the accounts lost 20 % in value, but there were some great buys, because I hold 20 -30 % in cash, being retired. But that's a different situation from someone trying to maximise a capital base. Also, the cash cushion means that one doesn't have to liquidate to pay minimum required distributions
. In addition, in any market, there are secutities that are nicely discounted on one's shopping list ...just a few weeks ago a couple of dry bulk shippers were way off their highs (but they pay nice dividends), and I bought a few moreof their shares ...then I found out that there was a conspiracy to move the Baltic Dry Index ...A Chinese shipper undercut the market rates for the shipping contracts, and with his losses (offering rates below those of his competitors) being secured by the Chinese Central Bank, was able to deflate the Index. Once this had been discovered, the other shipping companies recovered a bit. So, the Chinese gov't., which had become increasingly concerned about their commodity transport costs, sort of figured out how to get the costs down ...temporarily. Coincidentally, the denouement occurred while Mr. Mulligan wrote about investing like a Chinese general...and it was most a propos, I would like to suggest that being constructively paranoid ... planning ahead and digging into the sectors that "CRASH", provides some excellent investment opportunities.
Others have made specific recommendations elsewhere, regarding what to buy in a downturn. I just don't trade that frequently.
379 points
dustbusterz answered one year ago …
EthanR makes some very good points here. but the reason people get scared to buy when stocks are depressed 20 to 50 % , is that they really need to do hard research to find the true value stocks. cause if you just wade in on any beaten down stock right now, you could get yourself into a stock that has bad fundamentals and will eventually be worthless. keep in mind, a stock that has gone down 50 or 60% might be a bargain, but it can always be delisted or go out of business . so when fishing around in these waters, its really important to do your research and make certain you have a true bargain and not a dead fish .
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