A Great Sale on Stocks

October 4, 2011 RSS Feed Print

Adam Bold

There’s a big sale going on now, and I'm not talking about mattress and sofa deals. We’re in the midst of a great sale on stocks.

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When it comes to everything else in life, we want a bargain. Retailers put stuff on sale because people tend to buy more when it costs less. When a store raises prices, people tend to buy less; when prices come down, we usually buy more. Firms still make a profit and they sell more product.

Groupon and other sites have allowed people to pinpoint deals at restaurants and stores where they live. Why have these sites become so popular? Because people like getting a deal.

For some reason, stocks are the one thing people don’t tend to buy when prices are low. They’re not enticed by a deal on stocks. So often we see people sell their stocks when prices are down and then buy back in when prices are high.

The Dow Jones Industrial Average started the year at 11,600 and reached a high of 12,800+ in April. Now it’s down to around 10,655. Yet corporate earnings are better than they were at the beginning of the year. With prices down and improved earnings, those stocks are actually a better value now than they were on Jan. 1.

[See 4 Things You Should Know About Market Volatility.]

The stock market is offering a coupon for a nice discount, plus it’s throwing in the bonus of improved earnings just for making the purchase. That’s a great buying opportunity. Why do people pass it up? The tendency is to wait until they’re confident the market is going back up. Unfortunately, they don’t have that confidence until after it’s already gone up. They don’t know when it's the right time to buy until after it’s passed them by.

What if you got out of the market and are afraid to get back in? Instead of waiting, contact your investment advisor and develop an approach to get back in the market. You’ll want to have a systematic strategy that takes the guesswork out of it. If prices rise, you get to participate. If prices drop, you'll still have some of your powder dry.

Or, maybe you’re fully invested already. This is an excellent time to adjust your investments, especially if your holdings are sub-par. You might have some underperforming mutual funds you've held for 10 or 15 years. You may not know if they’re doing well or poorly, or you’re not getting any advice on what you should own. Think about making a change if funds have done poorly against their peers for five years or more.

In addition, you can raise contribution amounts to your retirement accounts (IRA, 401(k), etc.) to purchase more shares at these discounted prices. And this is an excellent time to rebalance or realign your investments.

One thing to remember: When you invest, it takes time to realize what a good deal you’re getting. You won’t feel the same kind of instant gratification as you do from finding a good sale or a deal on Groupon. It might take a month or a year. It might take a couple of years. But I believe that if you buy stocks at today’s levels, one day you’re going to be very happy you did.

Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice with locations coast to coast. He's also host of The Mutual Fund Show, a call-in radio program broadcast across the country. Bold is author of the book The Bold Truth about Investing (April 2009). Bold is Chief Investment Officer of The Mutual Fund Research Center, an SEC-registered investment adviser, which provides mutual fund and asset allocation recommendations, and research to stores in The Mutual Fund Store system.

Tags:: investing,; mutual funds

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So, I read this article and it's about what a great deal stocks are right now. Then I listen to Adam Bold on his radio show and he say's he is reducing stock funds and increasing bond funds. 10 minutes later he says he thinks the Dow is going to close the year at 13,200. So he is saying that the Dow is going to rise 18% in 3 months, or at a pace of 99% if you annualize it. That's a very bullish stance, yet he says his company is selling stock funds and buying bond funds due to slowing growth. So what gives? Is he doing one thing and saying another? Or does he really know what he's saying or doing or neither?
Also, regarding the discussion of funds in the bottom 10%. I hear Bold say every weekend to SELL funds because they are in the bottom quartile. He says if they are in the bottom quartile that will likely perpetuate. So then someone says Bold says to buy funds in the Bottom quartile. It makes me wonder. Does Bold just say whatever he thinks a potential customer wants to hear?
One day, it's "don't buy bonds because interest rates are going to go up" the next day he is buying more bonds and selling stocks.
One day it's "sell any fund in the bottom quartile, because that will continue" the next day it's "buy funds in the bottom quartile because they are on sale"
Then he says the the "science of investing". There is no science in any of this bull#%&* he is writing, saying or doing.

LH Longerman of RI 11:35AM October 09, 2011

Red Eyes is upset because he had 25% of his portfolio in gold. Mr Bold recommends funds that are in the bottom 10% because he wants you to buy low and sell high.
It is very important that you understand this. Otherwise you are just chasing high returns and yipping like a little Chihuahua.

JOHN BOGLEHEAD of PA 1:39AM October 09, 2011