A recent article in the Wall Street Journal serves as a great reminder to us long-term investors that when stocks are down, it is a good time to buy, hold, and diversify.
The Time Is Now
How do I know that now is a good time to buy stocks? Well, I don’t know that the stock market will not go down further, but I do know that the DOW was about 600 points higher in early 2000 than it is today. Therefore, historically speaking, stocks appear to be on sale. Maybe a quote by the ever astute Warren Buffett will help to encourage us to put our cash to work in this market:
“If a stock [I own] goes down 50%, I’d look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.”
Of course, that thought process only works when you have cash available to invest and you are confident in the long-term prospects of the businesses that you are invested in.
What is Your Time Horizon
Welcoming a bear market with open arms is easy if you have the two following things on your side:
If you have excess cash available to put to work for at least 7-10 years, then loading up on high quality dividend growth stocks and low-cost ETF’s should be a no-brainer at the equity prices that we see today.
Even if you are fearful of investing in certain companies whose share prices have been beaten down badly over the past year, dumping money into a low-cost broad based index fund is likely to produce some nice positive returns over a longer time period.
Why Does It have to Be Hard?
Investing doesn’t have to be hard, but then again there are “talking heads” all over the news spreading the latest doomsday quote of the week and spouting off data that probably doesn’t affect your investments in any meaningful way over the long haul - yet it influences our decisions.
Wouldn’t it be excellent if we could develop a systematic way of investing in high quality dividend paying stocks that raise their dividends over time and continue to buy more shares when prices are lower and buy fewer shares when the prices were high?
Of course, the news outlets will try their best to make you sway from your strategy as they spin every market correction into the next great depression and every recovery into the next gold rush…but then again they are out to sell papers and not to invest in stocks.
It is always easier said than done, but in order to gather wealth we have to do four things:
1.) Shut off the media
2.) Develop your investment plan
3.) Implement your investment plan
4.) Don’t quit
It may sound too simple, but over the course of 7-10 years it is amazing how little the daily blips in the market really affect a sound investment strategy.