Sunday, October 12, 2008

Anybody buying?

Here's my completely uninformed financial opinion.

The Dow has dropped 35% in one year. Considering the current economy, it's probably quite true that many stocks were quite over-valued a year ago, maybe by 35%, even 50%? But I can't imagine long-term that it's much more than that.

This isn't to say that there's no risk left and we are "at bottom". I imagine a large number of companies, including some stalwarts, are going to fail in the next year. But, as a whole, if we have 5 or more years to recover, most of the stocks are going to come back. (Ignoring interest, if it takes 5 years for a stock to get back to 2007's level, that's a 7% per annum growth.)

If I already had a job and didn't plan on moving in the next 24 months, I would seriously think about finding some cash to put in now. As it is, I might need all the spare cash we do have in savings to move and pay rent before the pay checks arrive in the near future.

Ignoring that, if I had time to research, I'd look for companies with low debt ratios and high liquidity and buy a few of those. You don't need super earnings from stunning new products on this pure value buy. You just want a nice stable company that can live through the next two years and come out the other side okay. However, since I don't have much time to research individual stocks (or expertise to judge), I guess I'd just buy a broad index so that the failures I can't avoid are only a portion of the holdings.

Moreover, while the financial industry is leading the charge into insolvency and taking many of us down with it, it's not like we aren't going to have banks in the future. If I had a good lead on which ones will make it, I might specifically want to buy some financial stocks.

If I had long-range money.

What do you all think? No way you are putting retirement savings in the stock market now? Or are you buying everything you can? Are you singing "t-bills, t-bills, buy what you will, i live for t-bills?" Or are you just shocked that I just did a finance related post?


bunnygirl said...

I don't think the bottom will be in for awhile, but I have my eyes open. I moved my 403b out of mutuals last spring and into T-bills and annuities. I'll move back into the market when the indicators are looking better.

For those of us in the prime of adulthood with at least 15-20 years before we can start thinking about at retirement, this is the opportunity we've been waiting for. The Boomer generation is too big and the ones before them too deeply entrenched for us to have gotten much of a foothold before now.

If you can beg or borrow (I don't recommend stealing) a way into land, a house, solid stocks or some other kind of investment in the coming years AND if you have a little luck, you'll be sitting pretty in old age.

One of my grandfathers played the Great Depression badly. He bought a Boston golf course too early and wasn't able to hold onto it until it could start paying for itself. My other grandfather bought land with borrowed money for the price of unpaid taxes, lived on the land while unemployed, rented it out when he had work, and lived a frugal life. Even after raising 8 kids and supporting a stay-at-home wife, he died worth close to $1M. His profession? Railroad car inspector. Yep, he never earned much money but he played the Depression smart and did very well for himself.

Anyone over 30 should have enough smarts by now to make some savvy decisions. Anyone under 50 has enough time to see those choices come to fruition in time for a comfortable retirement. We need to think of ourselves as fortunate, living at a time of great opportunity.

blogless troll said...

I agree with bunnygirl that it's way too soon. There's too much uncertainty. A big reason this nose dive started was the uncertainty of who was going to get bailed out and who was going to be allowed to slide into bankruptcy. And that's still shaking out.

Plus, it's not necessary (or wise) to try to guess the bottom. When the markets are eventually allowed to function without the "help" of the government (like banning short selling) it will still take a long, long time to recover and there will be plenty of time. Bear market rallies can last weeks or months, but when they're over it all goes right back down.

That being said, if it gets really bad you can buy individual stocks without much downside like you said. Back in 2002 I picked up Corning for like $1.35 not because I guessed the bottom correctly, but because it was Corning for $1.35. It wasn't going out of business. My only regret was not having more money to pour into it.

As far as financials go, my cynical response would be buy Goldman Sachs and JPMorgan because they won't be allowed to go under. But I don't know if I'd actually put money in them.

The important thing is to not jump the gun and get in too early. Neither the stock market nor real estate is going to shoot right back up to where it was and stay there. If it does shoot right back up, it's coming down again. Even if a real bottom is put in and you miss the first 20% to the upside by being overcautious, there is still plenty to be made. Whatever you do just don't listen to Jim Cramer. Even when he's telling the truth.

writtenwyrdd said...

If I had any long range $ I'd buy some stocks, too. but I'm retiring in about ten years if I can afford it, and I am not going to risk my money, so even through I'm not 50 yet, I'm focusing on putting cash into the retirement account. I figure the 4% growth is good enough..

blogless troll said...

Here's some interesting reading. But again, it's all just talk until it happens. Mining stocks and the gold and silver ETFs are probably a good bet though.

Precie said...

Well, yeah, I'm considering buying a teensy bit of something long-term, like Cola Cola or Disney...but I'll probably keep dragging my feet about it until the market bounces back and it's too late for me to benefit.

Robin S. said...

1. I am shocked.

2. I was a broker with a regional brokerage house before I had children.

3. Who the hell knows? But I agree, I don't think we've seen the bottom. I think we'll see some bounces (there are companies out there now, more than one, that have more mere cash than their stock value would indicate, all future earnings aside).