Thursday, September 18, 2008

What to do with the Market Dropping? VFC Says BUY!

When the stock market plunged over 400 points yesterday, millions of people pulled the sell trigger and got out of their investments as quick as they could to avoid further losses. Many of those people were sitting on the sidelines while the market rebounded today, rising by over 400 points. But aside from the rebound, even if the market dropped again today, selling is the last thing on VFC's mind, unless I'm trading in and out of a particular stock.

While people are panicking in a down market, I'm loving the buying opportunities that the down market has created for the average investor, as all down markets create great buying opportunities. If there is ever a time where a small investor can count on fairly large percentage gains, it's when the small investor buys in the down market and rides it up when the market rebounds. And the market will rebound. It may take a little while, but the market always rebound. It rebounded after the crash before The Great Depression, it rebounded after the crash in 1987, it rebounded after the tech bubble busted and it rebounded after 9/11. With the market down like it is, VFC is gobbling up the discounts while others are selling into the downturn.
The old investing strategy of 'Buy Low, Sell High' is tough to abide by because you can never predict when the actual low or high is in front of you, so ya gotta use your good judgement and do your DD. Even though the market may not be at a bottom right now, it's low enough for me put money in places that I wouldn't in an up market; in ETFs and the 401k. I don't put as much money into the funds when there is an up market, because they lose too much value when the market goes down. I'd rather buy funds in the down market and get the bigger percentage gains when the market goes up. I like to buy funds low. But that's just me.

An ETF, for those that may not be familiar with them, are Electronically Traded Funds. They are funds that trade as stocks. There are ETFs made to mimic the performance of an index, foreign markets or whatever else. As they've gained popularity, the amount of funds has grown. They're not a favorite of mine, but right now I'm adding to my positions in SPY (follows S&P) among a few others. Now is the time to get into ETFs, in my opinion, while the stock market is down. The percentage increase will be a lot better when the market rebounds. If you bought ETFs last year when the market was soaring, you're down now, which isn't a thing unless you sell, but when the market rebounds, you'll have a lot of ground to make up just to get even before you are even in the green again. You're in the same boat with your mutual funds. There's very few funds out there that beat the market and fewer that make money when the market is down.

If you're a government employee or a military servicemember, now is the time to funnel your funds into the TSP. While everything is getting hammered, get in on the 'cheap' and reap the rewards later. The rewards may not be immediate, or even next month or next year, but they will come. You've just got to have patience.

I only bring this up because I know too many people that have been selling into this down market instead of taking advantage of the huge discounts that are out there. I'm talking about people that are saving for the future who are scared and are selling now at a loss. If you're in for the long haul, then HOLD for the long haul! The market will rebound. The market will rebound and you don't want to be on the sidelines when it does.

An up market tends draw in more new investors than a down market, and that's a shame. Too many uninformed people buy into the up markets based on a positive feeling; everyone else is making money, so I can too. It's human nature to follow the positive feeling, but unfortunately these people will again sell on the negative feeling when the market drops. These people lose their money and will probably never get back into the market. They'll trust their hard earned money with 'money managers' that will invest them into funds and rape their savings with hidden fees.

That's good for some people, you need stomach to invest in stocks, especially during the bad times and if you haven't got the stomach to invest in a down market or deal with volatility, then you shouldn't be in stocks and the money managers are for you. But ANYONE can do ETFs. I personally hate ETFs and mutual funds because of the relatively small returns you get compared to stock gains, and I don't like all the hidden fees, but I am buying ETFs right now and throwing money into TSP, only because the returns will be worth it after buying at this level.

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The point is, instead of selling now, BUY!. This doesn't go for all of your investments. If you've done your homework on a particular stock, and nothing has changed with the reasons why you bought it, chances are it is only down because the market is down. That means you should buy more of that stock at a discount. If it was good enough that you decided to buy it at a higher level, and the only thing keeping it down now is the broad market condition, then it should be an even better buy now.

There's plenty of stocks being sold at a discount right now. The stocks will rebound with the market. I'm not suggesting getting into financials (the ones still standing) right now unless you've got a huge tolerance for risk, but there's plenty of safe areas and stocks to invest in right now that are only beat down by a bad market and they should rebound nicely. I like General Electric (GE) and Nordstrom (JWN) as two of these. Nordstrom is a victim of a retail slowdown and will bounce back when the economy picks up. Nordstrom's customers are generally those that have money when the market is up or down, so I expect a turnaround there. GE has been hit by bad news as much as a bad market, but I feel confident buying at these levels, just over twenty bucks, because GE isn't going anywhere. It'll be a steal in the long run, in my opinion.

There's a lot going on with Dendreon right now (DNDN) and CPST is a steal at these levels, in VFC's opinion, recent stock offering aside.

The point is, don't be one of those that sells out now only to be on the sidelines when the market rebounds. The economy will rebound and the market will rebound. The truth is, regardless of how much the politicians tell us that we are in a horrific state, downturns in the economy and the market are normal. The economy works in a cycle; you have ups and downs. This downturn is more pronounced because of the housing crash, but that is more the result of predatory banking practices and the fact that most of America did not understand basic principles of finance and took on more than they could chew. The American way is to live by credit and that practice kept getting more and more pronounced until things just imploded.

Before anyone goes out and purchases a house they should be well versed on the different types of loans that are out there AND they should be buying a house that fits their budget.

VFC loves the down markets, more than I love the up markets. The volatility is great for trading stocks and it's great for percentage gains down the road.

Don't panic right now, BUY!

Zecco Holdings

The Shepard Investment Strategist

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