{"id":9863,"date":"2022-06-26T18:26:15","date_gmt":"2022-06-26T23:26:15","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=9863"},"modified":"2022-06-26T18:26:17","modified_gmt":"2022-06-26T23:26:17","slug":"time-to-start-buying","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=9863","title":{"rendered":"Time to Start Buying?"},"content":{"rendered":"\n

Trying to time the bottom is a fool\u2019s errand \u2026 a better litmus test for buying \u2026 where Eric is looking today \u2026 how our current bear market shapes up to past bears<\/em><\/strong><\/p>\n\n\n\n

Buy low, sell high.<\/p>\n\n\n\n

That\u2019s what every investor attempts to do.<\/p>\n\n\n\n

Today, with so many stocks having taken it on the chin, an increasing number of investors are wondering if this is a \u201cbuy low\u201d moment.<\/p>\n\n\n\n

On the other hand, the economic data we\u2019re receiving are getting worse. That suggests that more market declines could be in front of us.<\/p>\n\n\n\n

So, how do we navigate this?<\/p>\n\n\n\n

Well, unless by sheer luck, none of us will time the bottom perfectly.<\/p>\n\n\n\n

Fortunately, perfect timing isn\u2019t a requirement for generating wonderful long-term returns from stocks.<\/p>\n\n\n\n

Given this, many investors would benefit from a slight change in perspective\u2026<\/p>\n\n\n\n

Rather than asking \u201chas the market finally bottomed-out and it\u2019s time to buy?\u201d perhaps the wiser, more realistic question is \u201care stocks currently priced to make solid returns several years from now \u2013 even if they head lower in the short term?\u201d<\/p>\n\n\n\n

This question removes the burden of perfection. And that can be incredibly helpful given that many of us suffer from stock-based \u201canalysis paralysis.\u201d<\/p>\n\n\n\n

So, are stocks currently priced \u201cattractive enough\u201d to warrant some buying?<\/p>\n\n\n\n

Yes, according to our macro expert Eric Fry.<\/p>\n\n\n\n

From Eric\u2019s latest issue of his free newsletter, Smart Money<\/em><\/strong><\/a>:<\/p>\n\n\n\n

Most likely, the major averages have not yet reached their bear-market lows.<\/em><\/p>

Based on probabilities, the stock market averages will drift even lower than they are today and reach their ultimate lows a few weeks or months from now.<\/em><\/p>

That said, the stock market is not one big monolithic creature. It is a market of stocks, more than 8,000 of them. Even if the S&P 500 does not bottom out immediately, many individual stocks will.<\/em><\/p>

\u201cBest-of-breed\u201d stocks, in particular, tend to bottom out first, and then move higher while the rest of the market is languishing.<\/em><\/p>

And because we investors rarely get the opportunity to buy best-of-breed stocks on the cheap, we should be looking for opportunities to do that \u2014 starting right now.<\/em><\/p><\/blockquote>\n\n\n\n

***What history tells us about how much longer we might be in this bear market<\/strong><\/p>\n\n\n\n

Let\u2019s dissect Eric\u2019s analysis.<\/p>\n\n\n\n

He begins by suggesting that the major stock indexes most likely haven\u2019t bottomed. And it could be months from now before we see those ultimate lows.<\/p>\n\n\n\n

So, what does history tell us about how much longer it could be, on average?<\/p>\n\n\n\n

Let\u2019s start with some perspective on where we are today.<\/p>\n\n\n\n

From its most recent high in early January, the S&P is down 21%. That\u2019s an official bear market, as defined by \u201cdown 20% or more from the recent high.\u201d<\/p>\n\n\n\n

The Dow is down 17%, so it\u2019s not yet in a bear market.<\/p>\n\n\n\n

Finally, the Nasdaq is down 30%.<\/p>\n\n\n\n

From a duration perspective, the Nasdaq has been headed south the longest. Its decline began on November 22. That\u2019s 213 days.<\/p>\n\n\n\n

The S&P\u2019s correction started on January 4th, so that\u2019s 170 days.<\/p>\n\n\n\n

And the Dow peaked a day later on January 5th, or 169 days ago.<\/p>\n\n\n\n

How does all this compare to the average, historical bear market?<\/p>\n\n\n\n

From CBS News<\/em>:<\/p>\n\n\n\n

On average, bear markets have taken 13 months to go from peak to trough and 27 months to get back to breakeven since World War II.<\/em><\/p>

The S&P 500 index has fallen an average of 33% during bear markets in that time\u2026<\/em><\/p>

History shows that the faster an index enters into a bear market, the shallower they tend to be. Historically, stocks have taken 251 days (8.3 months) to fall into a bear market. When the S&P 500 has fallen 20% at a faster clip, the index has averaged a loss of 28%.<\/em><\/p><\/blockquote>\n\n\n\n

So, if the average S&P bear market is 13 months top-to-bottom, and the S&P is currently not even six full months into its decline, obviously the numbers suggest we\u2019re not even halfway done.<\/p>\n\n\n\n

On top of that, if the average S&P bear market falls 33%, our current 21% decline appears light.<\/p>\n\n\n\n

However, the good news is the S&P has fallen into a bear market faster than the historical average. That suggests we\u2019re not too far away from the potential shallower bottom of 28%.<\/p>\n\n\n\n

For even more details on when we might be through the worst of this, in a report published yesterday, Goldman Sachs suggested that the low point in the stock market usually comes about six to nine months before earnings per share bottom, and three to six months before the economy\u2019s low water mark. But that\u2019s only after inflation has started receding, which hasn\u2019t happened yet.<\/p>\n\n\n\n

Put it all together, and Eric\u2019s call seems accurate \u2013 we\u2019re not yet at the low, and it could potentially be months away.<\/p>\n\n\n\n

So, why buy now?<\/p>\n\n\n\n

Well, let\u2019s underscore a key distinction \u2013 when Eric suggests it\u2019s time to buy today, he\u2019s talking about \u201cbest-of-breed\u201d stocks, not the average S&P stock.<\/p>\n\n\n\n

As he noted, these stocks tend to rebound first. And they\u2019re so infrequently \u201con sale,\u201d that buying when prices are attractive is a rarity that demands action.<\/p>\n\n\n\n

So, let\u2019s talk about how to buy, and then specifically, what to buy.<\/p>\n\n\n\n

***Overcoming your fear-based aversion to buying when stocks are falling<\/strong><\/p>\n\n\n\n

Stock market analyst Cullen Roche once said, \u201cthe stock market is the only market where things go on sale and all the customers run out of the store.\u201d<\/p>\n\n\n\n

Of course, this fear is natural. Buying when a stock is in freefall appears to be a guaranteed way to destroy your hard-earned dollars.<\/p>\n\n\n\n

But again, the new question isn\u2019t \u201cwill it fall further?\u201d it\u2019s \u201cis today\u2019s price attractive from a long-term perspective?\u201d<\/p>\n\n\n\n

Here\u2019s how Eric put it back in March of 2020 when the market was imploding:<\/p>\n\n\n\n

Stock market selloffs are the extreme events that create opportunity. They produce the panic selling and \u201cwashouts\u201d that usually offer great moments to make savvy long-term investments\u2026<\/em><\/p>

History tells us that moments like these are what buying opportunities are made of.<\/em><\/p>

So, if you have the stomach for it, do a bit of buying over the next few weeks\u2026 while others are fearful.<\/em><\/p><\/blockquote>\n\n\n\n

Now, if buying today is too tough for you, take even more pressure off yourself by dollar-cost-averaging into your desired stock.<\/p>\n\n\n\n

In other words, spread out your investment over a period of weeks or months.<\/p>\n\n\n\n

Rather than putting, say, $4,000 into a stock tomorrow, divide it up into four tranches of 25%. Invest $1,000 tomorrow, then perhaps the remaining $1,000 allotments spaced 30 days apart over the coming months.<\/p>\n\n\n\n

If your stock moves lower after you\u2019ve invested some, okay, you still have investment capital that will benefit from lower prices. But if your stock climbs after you\u2019ve invested some, okay, some of your money is benefiting from your lower cost-basis.<\/p>\n\n\n\n

How much and how frequently to invest is a function of your unique investment temperament and risk profile.<\/p>\n\n\n\n

On one hand, you don\u2019t want to invest so much that you\u2019re losing sleep at night. But being too comfortable isn\u2019t always a good thing either. My favorite investment quote on this idea comes from Rob Arnott of Research Affiliates:<\/p>\n\n\n\n

In investing, what is comfortable is rarely profitable.<\/em><\/p><\/blockquote>\n\n\n\n

***So, what exactly is a \u201cbest-of-breed\u201d or a \u201cforever\u201d stock?<\/strong><\/p>\n\n\n\n

Back to Eric:<\/p>\n\n\n\n

These are the stocks you hold through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock\u2026<\/em><\/p>\n\n\n\n

While there\u2019s no set definition of a world-class business, I believe they share at least four critical traits:<\/em><\/p>\n\n\n\n

  1. Forever Stocks possess an impregnable competitive advantage over their competitors \u2014 a \u201cmoat.\u201d<\/em><\/li>
  2. Their competitive advantage shows itself through rising revenue and cash flow. (Earnings should be rising as well. But accounting gimmickry can easily manipulate profits, so I generally ignore reported earnings and focus mostly on revenue and cash flow.)<\/em><\/li>
  3. They use cash flow to enrich shareholders, through rising dividend payouts, share buybacks, astute acquisitions\u2026 or a combination of all three.<\/em><\/li>
  4. They maintain a healthy balance sheet in order to preserve their financial flexibility and resilience.<\/em><\/li><\/ol>\n\n\n\n

    In his issue, Eric points toward Amazon and Nike as examples of Forever stocks. They\u2019re both world-class businesses with beloved brands. And barring something completely unexpected, they will remain this way for decades to come.<\/p>\n\n\n\n

    Yet, as I write, Amazon is offering investors a 40% discount to its price tag from July of last year.<\/p>\n\n\n\n

    Meanwhile, Nike is on sale for 39%-off last November\u2019s high.<\/p>\n\n\n\n

    Now, could these stocks go lower?<\/p>\n\n\n\n

    Of course. And you should expect that.<\/p>\n\n\n\n

    But please permit me to beat this dead horse one more time \u2013 you don\u2019t have to time things perfectly and buy at the bottom.<\/p>\n\n\n\n

    You only have to buy at a price that is likely to make you money a few years from now.<\/p>\n\n\n\n

    Bottom line, an increasing number of Forever stocks are attractively priced today, even if their respective lows remain in front of us.<\/p>\n\n\n\n

    I\u2019ll give Eric the final word:<\/p>\n\n\n\n

    It takes guts and a long-term commitment, but if you are even thinking if taking advantage of quality bargains, now is the time to put this philosophy into practice.<\/em><\/p><\/blockquote>\n\n\n\n

    Have a good evening,<\/p>\n","protected":false},"excerpt":{"rendered":"

    Trying to time the bottom is a fool\u2019s errand \u2026 a better litmus test for buying \u2026 where Eric is<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421,3422],"tags":[888,3425],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9863"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9863"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9863\/revisions"}],"predecessor-version":[{"id":9864,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9863\/revisions\/9864"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9863"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9863"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9863"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}