The time to buy shares is when everyone else is selling. What are you waiting for?
It's different this time.
This is no ordinary recession. This is a global recession. What hurts the US, hurts Japan, China and other Asian countries. What hurts them, hurts Australia, Canada, Africa and other commodity rich countries.
Countries are hurting. Consumers in those countries are hurting. Job losses are mounting. House prices are falling. Stock markets are falling. Pension funds are falling. Savings rates are falling. It's a nasty, downward spiral.
Unlike a common or garden recession, this time around, analysts, economists, government, policy-makers, housewives, journalists and publicans cannot agree on how this will all pan out, or when the economy will recover.
Inflation, Deflation, Sir Fred Goodwin, Recovery or Failure?
Here are just some of the various viewpoints…
- It will take years, possibly decades, for the massive debt-fuelled excesses to be purged from the balance sheets of consumers, businesses and government. We'll effectively be in recession for many years to come.
- Even if the economy recovers, the recovery will be slow, and most businesses will never again regain their pre-bubble levels of profitability. The stock market will languish for years.
- The economy will begin recovering in 2010. The unprecedented combination of ultra-low interest rates and massive government stimulus packages, on a global scale, just has to get the economy moving again.
- Inflation is our greatest fear.
- Deflation is our greatest fear.
- Most pundits have so far failed to predict the length and severity of this global economic recession. They continue to be overly optimistic, and they'll continue to be wrong. Forget Recovery: 2010. Try Recovery: 2013.
- Whatever happens, consumers and businesses are on the hook for higher taxes in the years and decades ahead, as we all collectively pay for government's massive spending and welfare spree.
- Sir Fred Goodwin, former head of Royal Bank of Scotland (LSE: RBS) made an honest mistake, or three. He also has a large pension.
Worst Since The Great Depression
It's difficult to predict the future at the best of times, let alone now, when by most accounts, we are in the worst recession since the Great Depression of the 1930s.
Given the uncertainty, and the polarised views of many experts, stock market investors would be forgiven for sitting on the sidelines and waiting to see which way the economy swings. As I said in The Bottom Of This Market May Still Be Ahead, the FTSE 100 could easily breach its November 2008 lows and could fall as far as 3,000. This market is unpredictable, if nothing else.
If the market does fall to 3,500, and if it does get anywhere near 3,000, you'd reckon that would be an ideal time to buy, wouldn't you? After all, conventional wisdom goes that the time to buy shares is when everyone else is selling. Even excellent companies like Tesco (LSE: TSCO), Diageo (LSE: DGE), Centrica (LSE: CNA) and British Sky Broadcasting (LSE: BSY) would be trading at bargain basement prices.
If you are waiting on the sidelines today, waiting for the FTSE 100 to go below 3,500, you might think you are making a smart move. But you know what? I bet if and when the market does go below 3,500, you'll still be sitting on the sidelines, waiting for it to go even lower.
Still Waiting to Buy
And if the FTSE 100 does fall below 3,000, I bet you'll still be waiting to buy. That's because, if the market did fall another 20% from here, it will have done so for a very good reason.
It might be because of the failure of some major companies in the financial services or manufacturing space. It might be because of fears the government will default on its debt. It might be because it is becoming increasingly clear the economy is not going to recover in 2010. It might be because Chelsea Football Club owner Roman Abramovich goes broke, and the club (hopefully) goes into receivership.
Whatever it might be, you can be sure the news is going to be negative. There will be more uncertainty than ever, and therefore more reasons than ever to not invest in the stock market.
By all means, wait for the worst to pass. Wait until the banking system is stabilised, the economy is growing again, house prices are rising and the pound is stronger. Then you can buy shares again…when the FTSE 100 is trading at 5,500. Remember, it was at 4,500, with a bullet, in January this year. Today it is around 3,900, with an anchor.
Take A Deep Breath And Hope
To be a successful stock market investor, you need to take a leap of faith. The time to buy shares is when the news is bad, the economy is struggling, and there are no lights at the end of the tunnel. It's when shares are at their cheapest.
The great investors have faith. The doom and gloom gives them the opportunity to buy great companies at cheap prices. If you wait for the recovery, you've waited too long. Have faith, and don't you be the person who makes the classic mistake of buying high and selling low.
My strategy is to continue to drip feed money into the market. If you are disciplined and contribute regularly to a low-cost index tracker, in the medium to long-term, you should be rewarded.
If you a little more adventurous, and are looking for some cheap medium-sized, cash-rich, dividend-paying companies to add to your portfolio, Chief Motley Fool Champion Shares Analyst Maynard Paton has no shortage of candidates. Click here to take out a 30-day trial to this premium stock picking service, and get instant access to all his very latest research and share recommendations.
Have faith. Have wealth. Have health. Have peace, dudes.
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> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.
