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This is the Time that Fortunes are Made

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Last October I asked, where would you put money now. I noted that quite a few things were expensive. Investments that were at full time highs were: Oil, the Dow, the price of gold, emerging markets, and China. I finally decided on a regional banks ETF despite the sub-prime mess. At the time, the price was around $40 a share. It's a little lower now - I'm happy I didn't move any money.

I decided to back at some of the comments made to see if anyone was wiser than me. Almost everything has gone down, so I can't be too hard on suggestions. A few people suggested buying VMWare. I hope they didn't buy that themselves as it's way down about 40-50% since October. There were some good recommendations in there as well. One commenter mentioned that you couldn't go wrote with First Solar. If you listened to him you could have doubled your money - provided you sold at the absolute top.

Enough of dwelling on the past, let's look to the present and future. The Dow is has dropped from 13892 when I wrote the article to 12192 as I type this. Many China stocks are down from their high. Vanguard's emerging markets ETF is down. Oil went back down, but close again to it's highs. This gold ETF just keeps going in one direction - up.

So what do you do now? Do you go buy more gold? Do you buy something that mimics the US stock market now that it seems to be cheaper than it was in October? I'm a value guy and hate paying for things at the top. Here are two places that see possibly making some people a lot of money. You might have to buy and wait 5 years, maybe 10-20, but I feel that they'd pay off quite well in time.

  • Technology Stocks - The Amex Technology Spider ETF is down from around $27.75 to around $22.50, making it seem like a solid choice since earnings have been fairly good in the area. Its odd for me to believe, but Apple, Google, Microsoft, and Cisco as value plays? It's true. It's very rare that you get to buy market leaders at a discount. Though some of them have shot up in price over the last year or more, I believe that now is a chance to get them and hold them.
  • Real Estate - This one depends on where you are looking. In northern California home prices haven't come down much. However, in Boston where I'm originally from, it seems you can find some home prices off as much as 30-40% from two years ago. Like tech stocks, the price may have been inflated in the first place. However, discounted prices combined with extremely low mortgage rates, makes this very tempting. I have a friend who knows he wants to settle down in a Boston suburb in 2-3 years. Due to some life circumstances, he can't live there until then. He's thinking of buying a home now and renting it out until he can live there. He reasons that if he just breaks even (or loses a little) with rent, it's better to get this price than pay 15% more and a higher mortgage rate. This seems like an extremely smart plan to me.

I'll leave you with the best call of the comments from that October post. The Div Guy said, "I think the Sox can win the next 3." He wasn't quite half right, they won the next 7.

Posted on February 11, 2008.

This post deals with: ... and focuses on:

Economy

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12 Responses to “This is the Time that Fortunes are Made”

  1. If you’re in it for the long term, what difference does whether it goes up or down in a few months make? Sure we all like to do a little market timing, but that’s not smart, that’s gambling. And though it is fun, it isn’t a plan.

    How do you want to balance your portfolio? IMHO you pick your stocks, and the balance you want to keep them in. Revisit which you most like LONG TERM and which you have second thoughts about LONG TERM. If you have money, buy the low stocks to bring them up to proportion. If you need money, sell your winners.

    I don’t think anybody will regret waiting a bit, but overall, we’re at the start of a good buying period.

  2. Lazy Man says:

    Let’s say that you are in Google for the long term – 5 years in this case. If you bought it at around $700 (it’s high), it might take all five of those years for you to break even. However, buying at $500 (as it was a couple of days ago), gives you a better return.

    If you think that Google is going to be $1000 in ten years would you rather have paid $500 for it or $740 for it? I think your return will be much better if you pay the $500.

  3. Wylie says:

    “If you’re in it for the long term, what difference does whether it goes up or down in a few months make?”

    It makes a big difference when “it” goes up or down a lot!

    In addition to Banks and Finance ETFs, I’ve been watching agricultural commodities:

    http://wyliemoney.blogspot.com/2007/12/speculating-on-food-and-finance.html

    Buying on dips can certainly be part of a plan:

    http://wyliemoney.blogspot.com/2007/04/when-to-buy-mutual-funds-part-ii.html

    I have been tracking mutual funds based on categories ‘large cap stock’ for example, but I think a better plan might have been to focus on sectors- Finance, Health Care, etc.

    Either way, I keep an eye on this for the big picture:

    http://www.morningstar.com/cover/pfvgraph.html

    Good luck investing!

    Wylie

  4. Ben says:

    An age old principle, how did Baron von Rothschild put it? Something about buying when blood runs in the streets. There may not be rivers of blood but there is certainly a flood of uncertainty and doubt.

  5. aa says:

    It looks like the market is going sideway.

    Buy gold, silver, oil, bear ETFs!

  6. “If you think that Google is going to be $1000 in ten years would you rather have paid $500 for it or $740 for it? I think your return will be much better if you pay the $500.”

    Ah, you see, that’s gambler’s thinking. First, you aren’t choosing between $750 and $500. Stock is not a consumer good, and it’s not a savings account. It’s capital. You have $500, and you want to know where to put it. Second, five years is not long term investing. Long term investing is for keeps.

    I’ve made 1200 percent in the last seven years. A little of that is based on gambling (for a while there it was SO predictable how Wall Street would react to Apple), but most of it I made just buying good companies and holding on.

    Individual stocks are not predictable enough to worry about a month or two. You lose as much as you gain that way. Be cold blooded. Figure out what you want in your portfolio, and then when you have the money, buy the best value among your options.

    Overall it’s a buying opportunity right now. But uncertain times mean unpredictable short term, so hedge your bets and be prepared to wait for your returns.

  7. Lazy Man says:

    I don’t believe that long term is always for keeps. Some stocks don’t pay dividends, so you need to think about selling them at some point.

    My theory is that if the stock triples in 5 years and looks expensive based on whatever metrics you use (earnings, growth, product line, etc.), you are wise to take some money off the table and look for another cheap stock. If it takes 10-20 years for it get expensive, then sell some of it off then.

    “Overall it’s a buying opportunity right now. But uncertain times mean unpredictable short term, so hedge your bets and be prepared to wait for your returns.”

    That’s what I’m saying. There are companies that getting hurt through no fault of their own. They are still executing and bringing in earnings. As long as you can weather the storm (which I think is 5-10 years max, more likely 2 years), this is a good time to make a huge amount of money.

  8. rstlne says:

    I’m using this bear market to pick up more income and royalty trusts. I’ve done this quite a number of times before and the double-whammy of high yield and stock price recovery can be quite impressive.

    I also already have precious metals but will get more on dips.

  9. I think that every day that the stock market is open there is an opportunity to make a fortune or to lose one. I would keep on buying dividend aristocrats, get increasing dividends because I am there for the long run..

  10. I’m planning to plow my regular amounts into my Roth IRA and leaving it at that. But you’re right, non retirement accounts should be policed more closely and selling has a place. And that’s from me, a buy and hold fanatic.

  11. Adfecto says:

    Ah hindsight. I’m an index guy so you won’t get much from me other than keep buying the index and don’t look back. MSCI All World is my pick. It has domestic, international (developed), and emerging markets. Get them through Vanguard for low expenses. If the media keeps up its drum beat of recession and bad news (as I expect it will) then maybe mid-year or even as late as early next year it may be a good time to be REITs but again I’d go with an index. For right this minute TIPS and/or Muni bonds may not be a bad place to be either. All of my suggestions come from my 30+ year time horizon. Check back then to see how I’ve done ;-)

  12. pfodyssey says:

    I’m trying to position for the long term:

    * Commodities, any kind of natural resource…including water! – see nowhere to go but up due to growth in world demand.
    * Healthcare – regardless of our policies, I think it is solid longer term.
    * International – I already have about 25% of my portfolio here (15% emerging mkts, 8% Europe)…am beginning to think as much as 50% overall is not ridiculous. Looking to balance out countries (add Latin America? Middle East / Africa?) and find a way to get some exposure in small caps (5%?).
    Foreign currency – still very much considering FDIC insured CDs (but still have currency risk)

    I pushed in a few more thousand here and there in January (commodities). I have 18% of my portfolio in T Rowe Price Cap Allocation (has been very nice offset to recent losses) and had been looking to allocate some of that to some of the more downtrodden investments. However, I haven’t actually done so…yet.

    Unfortunately, between fully funding my 401(k) and Roth IRA, there is not a lot of free cash readily available (thus the potential shift of Cap Allocation fund). I do have a large cash position in 12 mos CDs ($100+K @5.2%), but is for potential home purchase and so “off limits” to equities.

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