Seriously, Now Is the Time for New Money

Did you pay attention to your stock investments this summer? If so, you're probably sick to your stomach, because the market was down during the summer months. In fact, you'd be better off right now if the market had just closed down operations from Memorial Day to Labor Day.

Such is the fate of an investor.

The upside of down markets
If you checked in with us at all over the summer, you saw us proclaim on July 19 that "Now's the Time for New Money." We believed it then. Almost a week later (July 25), we wrote that "Now Really Is the Time for New Money." We believed it then, too.

Lo and behold, we're back, and we're as adamant as ever. Our message is unchanged: Now is the time for new money -- seriously.

First, a little background ...
We're not saying that July was a bad time to put money to work in the stock market. Since July 25, the S&P 500 is up 4%. Since July 19, the S&P 500 is up more than 6%.

That certainly wasn't market timing on our part. And the S&P could surrender those modest short-term gains, of course. But what we saw was a market that had dropped precipitously on short-term fears. And when that happens -- as it inevitably does along the market's gentle slope skyward -- investors are well served to silence the noise and buy shares of great companies at good prices.

The strategy works. It can supercharge your returns. But if you're worried that you've missed the boat, don't be. You can still cash in.

Why do we think this?
Despite the market's recent move upward, it has still yet to reach the highs it hit in early May. In addition, it's September again, and as the old investing adage goes, "Sell in May and go away, but remember to come back in September."

Before you cast that aside as some silly market mumbo-jumbo, consider the following: Researchers Sven Bouman and Ben Jacobsen found that the "Halloween Indicator," as it's known, was true in "36 of the 37 developed and emerging markets studied in our sample." Without going into all of the math, Bouman and Jacobsen found that over a 28-year period, market returns were close to zero between the months of May and October. They were closer to 8% the rest of the year.

In a word: Wow. Unfortunately, no one knows the why behind the wow. Theories abound, of course, but not one can explain why traders haven't been able to arbitrage this inefficiency into irrelevance. What we do know, however, is that it pays to make sure you're invested when fall rolls around.

You don't need a weatherman .
Down markets and summertime slumps happen. We can't predict the market's movements this week, this month, or this year, but we're confident that the market will continue its upward trajectory, buoyed by innovative and dynamic businesses.

There's an important distinction between businesses and stocks. Invest in superior businesses at reasonable prices, and you'll see the kind of success realized by shareholders in T. Rowe Price Group (Nasdaq: TROW  ) , Harley-Davidson (NYSE: HOG  ) , McGraw-Hill (NYSE: MHP  ) , and Brown-Forman (NYSE: BFB  ) , as well as Motley Fool Stock Advisor recommendations Electronic Arts (Nasdaq: ERTS  ) , Costco (Nasdaq: COST  ) , and Bed Bath & Beyond (Nasdaq: BBBY  ) . Each of these companies has returned between 15% and 20% annually over the past 10 years, using a strong brand and a profitable niche to make shareholders richer.

You didn't need to be a fortune teller or a penny-stock speculator to make money on these stocks. You just had to find strong businesses, be patient, and add new money regularly. That's how we advise members at Motley Fool Stock Advisor to make money in the stock market. Official Stock Advisor recommendations have outpaced the S&P 500 by 37 percentage points since inception. Join the community, view all recommendations and buy reports, and do so with no obligation to subscribe by taking a 30-day free trial.

NeitherTim HansonnorBrian Richardsowns shares of any company mentioned in this article. Seriously.Bed Bath & Beyond is an Inside Value pick. The Fool has adisclosure policy.


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