Thursday, August 4, 2011

It's An Investing Bloodbath, But I'm Still Buying Here

Maybe the last thing you really want to do today is read about stocks.
This has been some mean stretch for investors.
Thursday's bloodbath was enough to turn an investor's stomach. Maybe you were smart and tuned out.
But don't tune out for too long. Because history shows us that when the mass of investors pull out and tune out is exactly the time we should be shopping for our next buys.
I had two things that served as my saving grace Thursday, which appears to be one of the 20 biggest single-day drops in Dow history, no matter how you measure it.
The first was Teradata, the best performer in my portfolio. On a day when the Nasdaq plunged by more than 5%, Teradata held its ground. The data warehousing and analysis company beat expectations again this quarter. I expect it to move ever higher when sanity returns.
The second part of that saving grace was that I bought Thursday. That's right. I grabbed a piece of Mosaic in the morning, when the stock was down by some 8 %.
Some might think that was foolish on a day when investors were running for cover en masse. Only time will tell.
But here are a few things we can all be sure of:
  • When such big hits will happen cannot be predicted.
  • How large any particular hit will be cannot be predicted.
  • When the market "bottoms" cannot be predicted.
The only reliable way for investors to make money in this scary market is to buy. Buy when it takes a big hit. Buy if it takes another. 
Buy in chunks and try to keep money on the sidelines for the next opportunity.

I've been investing only for a few years. But I've been investing long enough to have learned how well this can work.
I started investing in 2008. The market crash started opening up opportunities, and they  kept right on coming. I bought General Electric (GE) when it hit $11, and then when it hit $8, and again when it neared $6. I sold when the stock was between $14 and $15 and locked in some nice profits.
I did the same with Petrobras (PBR) and Yanzhou Coal (YZC), which I'd bought for under $5 a share and sold near $20.
I hit doubles with at least one of the chunks of almost every stock I bought over my first year of investing. I still regret not buying Apple (AAPL) under $100.
Had I waited until things seemed "safe," I would have stayed out until probably sometime in the second half of 2009. But by that time, there wasn't all that much upside left to the market's recovery.

Take a look at the market's recovery from the March lows that year until the year end.
If you kept buying, you would have earned that 50-plus percent gain on at least one of your buys, and slightly smaller gains on those you purchased on either side of the bottom.
Now take a look at how you would have done if you steered clear until late 2009.
No so impressive, is it? Nine percent over two years.
Not impressive at all, actually.

It's hard to look at charts like these (or the one in this previous blog) and come away with any other conclusion than this:
The real money is made by stepping into the market when everyone else seems to be running for cover.

See my portfolio here.


  1. I'll start following you and buying what you buy. I'll analyze my business in another year and see if you were right. It makes perfect sense to me to buy and keep buying. However, with so many options it's nice to lean on someone like you. Keep updating and I'll keep reading and buying. You have a devout follower in me. Good luck!

  2. How's that for upping the pressure?
    But seriously, thanks for the support. I'll try to post my buys as soon as possible, even if I don't have time immediately to flesh out my rationale.

  3. I think it was way too early to get in. After ridding FAZ down, I got out yesterday on the close. I am still very careful today and only getting in a little bit in Rare Earth Metals companies or platinium. Still holding some cash for a larger drop. Adrianfr @ stocktwits