Why the Japan ETF May Make My Holiday Wish List

Bears "swear" that the stock market's crash in 2008 was inevitable, even predictable. However, recessions don't typically push major indexes down 45% in 10 months. Neither do bank crises or hedge-fund collapses.

Bulls "swear" that the worst is behind us, though they've been saying that since March. How many times have we heard the fundamental believers talk about cheap valuations? (Even with the right facts, they fail to account for the greed-fear dance.)

Bears see every obstacle as a reason for the "death of equities." And even a broken clock is right twice in a 24-hour period.   

Bulls sheepishly talk about riding out the storms and long-term time horizons. That's led to moving the bar beyond a decade such that, you NOW need to think in terms of 20 years. "Stocks have not lost money in any 20-year period... yada, yada, yada."

It is true that the iShares Japan Index Fund (EWJ) is trading at book value. That's got to start looking good to some investors.

It is also true that the losses on the S&P 500 SPDR Trust (SPY) already puts the current bear in the ranks of the worst of the last 110 years. And no U.S. bear has lost more than 50% since 1937.

(You'd think that 2000-2002's 50% fall from grace would have lessened the likelihood for back-to-back disasters. Or perhaps the 1930s shows just how ugly back-to-back bears can be.)

So the questions get asked time and time and time again:

Have we seen the bottom? Bulls say, "We've got to be close." Bears say, "There's much more risk to the downside."

Is now the time to buy? Bulls say, "Long-term investors should be buying at these steep discounts." Bears say, "Buyers will be sorry that they did."

Here's what I say:

Step 1: Put together a list of stocks, ETFs or mutual funds you would want to own if the world were not chaotic. What would that list look like? Would you get a piece of Apple (AAPL)? Did you always want to own a slice of Warren Buffett (BRK.B)? Did you miss the iShares Natural Resources (IGE) boom the first time around, and feel reasonably confident in the world's future demand?

Step 2: Wait for the daily range (low to high) to come back down to a reasonable level. In the month of October the S&P 500 traded in a range of 66 points, more than 6%. It traded in roughly a 2% range for the first 9 months. So we need to see relative sanity of 2%-3% daily ranges.

Step 3: Set a course for incremental purchasing (a.k.a. dollar cost averaging). You're not going to know the best day, so forget about calling a bottom. Use recession investing to your advantage and buy the stuff on your "Buy List" over the next 8-10 months. Personally, I might be interested in Japan (EWJ) based on companies trading at book value and an upcoming demographic shift. (A mini-baby boom puts Japanese consumers in their peak spending years circa 2009-2018.) 

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.