3 Reasons to Be Invested in Stocks Right Now

If you’re still standing on the sidelines in cash at the moment, here are three good reasons that you should be invested in stocks right now.

1. An investor’s choice of asset allocation is the single largest factor that will influence the probability of long-term success. Historical evidence suggests that cash investments return the least amount over the long run.
2. There is significant upside potential in equities for long-term investors right now. Stock valuations are, despite Q2’s rebound, well below their highs and have a long way to go to be back in line with what we consider to be fair value.
3. Sustained low interest rates and dramatic increases in money supply combined with increased deficits have many fearful of the inflationary impact once economic recovery takes hold. Money market investments, non-market linked CD’s and high interest savings accounts offer little protection against the wealth eroding effect of inflation.

That is not to say that there is no downside. In fact, there is an inherent risk when investing in equities. However, I beleiive the risk vs. reward payoff still favors the equity investor at this time.

Comments

[Larry House:]

Well, thanks for sharing your heart-felt conviction, but there is considerable evidence against your position. Many feel the PE multiple on the S&P is fully valued right now. With the outlook for a generational change in consumers, mountains of debt, muted earnings forecast, etc., etc., a strong case can be made that the risk/reward ratio does NOT favor stocks right now. Just because the market is down from the highs does not mean it is undervalued. I appreciate your excitement, but I really am afraid you fail to grasp the magnitude of what we are in.

Jul 16 04:26 PM

[ain't no fo...:]

So, Tyler, what are those three GOOD reasons?

You haven't mentioned them yet.

(ain't no fortunate son, formerly picked out of the lineup as wpdragon)

Jul 16 04:42 PM

[Swashbuckler:]

Unconvincing.

Jul 16 05:13 PM

[Gone Bust:]

Tyler,
Although many points seem valid, the truth is CD investments have outperformed the S&P 500 since 1994! Yes it is also true that the S & P did outperform in every one of those years with the exception of 2002. Tough decisions to navigate young Tyler!

Jul 16 05:13 PM

[Glen Bradford:]

The goal of buying stocks shouldn't be to pay fair value for the underlying company. That's my 2 cents.

But I might be the in the small group interested in buying low and selling high. What do we know?

Jul 16 05:18 PM

[Archman Inv...:]

Where was this article when the S & P was below 700??
I think was what, 40% ago?
Sure, stocks can keep rallying.
The only investing I am doing right now is my once a month dividend re-investment into one of my portfolio holdings.
Other than that, I am doing some light trading. I see no reason to be going all in after a 40% move. Especially when the economy is very iffy, and earnings are suspect at best.

compdivplan.com

Jul 16 05:31 PM

[Mad Hedge F...:]

Welcome to the bipolar market. The “head and shoulders” is off the table, and now the S&P 500 is looking at a double top at 950. This is why I hate listening to technical analysts, and why they shop at Men’s Warehouse and drive Hyundai’s instead of Bentley’s (see my earlier piece at www.madhedgefundtrader...). Generally, technical analysts tell you to buy every rally, sell every dip, and in a market that’s going nowhere this is a perfect formula for losing money. Watch them tell you to load up if we hit 950. It is clear from the ferociousness of the 70 point, three day rally that too many hedge funds were drinking the Kool Aid, and the blood is flowing as a result. One meekly explained to me that “head and shoulders” formations fail only 6% of the time. Well, welcome to the 6%. They are going to have to invent a new name to describe this formation (“head and shoulders with a hump back?). This is why I issued my now famous “Sell in May and Go Away” piece at www.madhedgefundtrader..., because the quality of the trades you usually get in the three months that follow is uncommonly low. Look at the chart that has ensued so far at www.madhedgefundtrader...). It looks like a lot of nothing.

Jul 16 05:37 PM

[richjoy403:]

Clearly, companies have learned to make profits in this poor economy; they can be expected to have far greater profits in an improving economy in 2010.

Because the stock market reflects future earnings, there are some wonderful bargains now for those who don't need to sell in the next few months.

Waiting for a new bottom in the 600s will probably never come. Sounds like trying to trade the market you want, instead of the market you have.

If you have not been using limit orders to build positions in the stocks you like over the last 4 months--you may want to consider starting now. None of my buy orders have executed this week, but will if we have a correction in the order of 4-6%. It has worked extremely well for me.

Jul 16 06:47 PM

[mkreisel:]

The Fed looks at chart too: it sees head-n-shoulder developing and the market gapping down around the world on Monday morning, so they bought another $63.965 billion worth of MBS, and the market took off instantly.

Jul 16 06:52 PM

[djc:]

Yeah - companies are doing /great/ navigating this tough economic environment -- their cost-cutting has kept their heads above water, and their earnings above expectations !

Just think - if they /keep/ cutting costs (laying people off), they could go to the mooooon !

...right ?

Jul 16 06:58 PM

[DaveW:]

At this point, it's too risky an entry for a long-term investor, too much downside risk for relatively little upside gain, IMO. However, as a 'trader', it has been lucrative to go long at meaningful price support. I see a re-trace to 905-910 and a bounce that will put in the right shoulder of an inverse H&S, if formed it would predict 1000 on the S&P:
img404.imageshack.us/i...

Jul 16 07:16 PM

[cs in sb:]

I am waiting for Cetin to be on CNBC to join all the other "analysts". At least Cetin was somewhat right even though he is a spammer.

GS and others will continue to pick the pockets of whomever they can, whenever they can. That is why they drove the DOW down last week to 8100 (to buy low and sucker in the shorts) and will sell high after some new cash comes off the sidelines. I expect a big sell off first week of August after the last week of July is tape painted. Then they will wash, rinse, and repeat until they can pay out some more bonuses. But who can blame them?

Jul 16 07:31 PM

[anarchist:]

How do you determine who is a "spammer"? As I recall Cetin just kept saying that "TARP" was working and the market was going to continue to rally. Are all the people on this thread saying that "this is a double top-or whatever- and S&P 500 is coming up soon" also spammers? If Cetin was buying all the time he was predicting he must have done quite well-how about you guys?


On Jul 16 07:31 PM cs in sb wrote:

> I am waiting for Cetin to be on CNBC to join all the other "analysts".
> At least Cetin was somewhat right even though he is a spammer.<br/>
>
> GS and others will continue to pick the pockets of whomever they
> can, whenever they can. That is why they drove the DOW down last
> week to 8100 (to buy low and sucker in the shorts) and will sell
> high after some new cash comes off the sidelines. I expect a big
> sell off first week of August after the last week of July is tape
> painted. Then they will wash, rinse, and repeat until they can pay
> out some more bonuses. But who can blame them?

Jul 16 08:27 PM

[Destin:]

Well he has linked to his website under today's alias twice in this article and god knows how many others. Sure sounds like spamming to me.

Jul 16 08:59 PM

[Steve in Gr...:]

For me, there is just no way to go long U.S. equities until we know where carbon dioxide taxes and socialized healthcare is going.

There is at least a 50-50 chance of either of them getting passed and implemented. This means there is a 75% chance that either or both of them gets implemented and only a 25% chance that both will not be implemented.

Either one will send us down to S&P 600 or lower. Both...God help us.

To me, the position is obvious. Short the S&P. Long USD and gold.

Jul 16 09:01 PM

[Mike McCurdy:]

Consider a more conservative approach to buy and hold - buy extreme weakness very selectively and then sell your position into strength.

Be neither a bull nor bear - conviction in this market is counterproductive.

Jul 16 09:15 PM

[untrusting ...:]

Rich, so how are those stocks you purchased back in 2006 and 2007 doing now, since your purchases have worked so well for you? But, buy all you want. Will be interesting to see how you view your buys now come August, Sept. and October if the market makes yet another serious downtrend as many believe is the most likely senario. There are much safer ways to play this market and still make money, yet not take on the hugh risk you are assuming by buying at these overpriced levels.


On Jul 16 06:47 PM richjoy403 wrote:

> Clearly, companies have learned to make profits in this poor economy;
> they can be expected to have far greater profits in an improving
> economy in 2010.
>
> Because the stock market reflects future earnings, there are some
> wonderful bargains now for those who don't need to sell in the next
> few months.
>
> Waiting for a new bottom in the 600s will probably never come. Sounds
> like trying to trade the market you want, instead of the market you
> have.
>
> If you have not been using limit orders to build positions in the
> stocks you like over the last 4 months--you may want to consider
> starting now. None of my buy orders have executed this week, but
> will if we have a correction in the order of 4-6%. It has worked
> extremely well for me.

Jul 17 12:12 AM