It's been a pretty terrible year for investing so far, hasn't it? The S&P 500 index is down 14.3% this year. Higher oil prices are driving up costs and reducing profits for many companies. The housing and credit crunch is still causing problems in the general economy.
In fact, did you know that the Dow Jones industrials had the worst first half since 1970? Why not just get out of the market altogether and leave this thing to the small-"f" foolish?
Because that is precisely the wrong thing to do.
Why? Well, I'm not going to trot out Warren Buffett's well-worn phrase about when to be greedy and fearful. We all know that one. But I will show you what other famous investors are saying about market conditions like today's -- and what they're doing about it.
Exhibit No. 1
Bill Nygren, portfolio manager of The Oakmark Fund: "We believe that many investors will become too emotional and sell price-indiscriminately when they are fearful, and buy indiscriminately when they are greedy. ... So we ask ourselves, where are we now seeing fear, and where are we seeing greed?"
He's buying where others are fleeing. Here are some of his recent purchases:
|
Company
|
Average Price
|
Increased Position by:
|
|
Best Buy (NYSE: BBY)
|
$43.40
|
99.2%
|
|
Cisco Systems (Nasdaq: CSCO)
|
$25.40
|
25.0%
|
|
Medtronic (NYSE: MDT)
|
$49.60
|
10.8%
|
|
Merrill Lynch (NYSE: MER)
|
$43.10
|
88.9%
|
Exhibit No. 2
Seth Klarman, portfolio manager of The Baupost Group, which has averaged returns of nearly 20% annually since its inception in 1983: "If we do invest prematurely, as we inevitably will in the next severe bear market, having the correct mindset will be more important than ever. It will take tremendous resolve in the face of extreme markdowns to hold on or even add to positions rather than capitulate along with everyone else."
He said that in 2005 -- and his resolve is holding. During this bear market, he's been buying despite a wider market sell-off. Here's some of what he's been getting more of recently:
|
Company
|
Average Price
|
Increased position by
|
|
International Paper (NYSE: IP)
|
$30.90
|
New
|
|
WellPoint (NYSE: WLP)
|
$51.00
|
23.9%
|
Exhibit No. 3
Ken Fisher, author of the long-running Forbes column "Portfolio Strategy":
After bear markets end, the initial upswings come fast and steep. It would be risky to get out now and end up being whipsawed -- that is, exposed to most of the decline but absent for most of the recovery. Now is the time for patience.
He knows that nothing lasts forever, not even bear markets. And when the bear is roaring, it's time to dig in. He recommends that investors consider Hewlett-Packard (NYSE: HPQ) for its great management and 19% market share by volume of desktop computer sales.
The master
Nygren, Klarman, and Fisher may be contrarian, but they aren't alone.
The wildly successful Sir John Templeton is no longer with us, so I can't share with you some of his recent picks. However, I can share what he had to say about investing: "It is extremely difficult to go against the crowd -- to buy when everyone is selling or has sold, to buy when things look darkest, to buy when so many experts are telling you that stocks in general, or in this particular industry, or even in this particular company, are risky right now. ... The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
By buying when the clouds were darkest, Templeton and his fellow legendary investors -- including Buffett -- have been tremendously successful.
And that means buying now.
The disciples
Two investors who have taken this philosophy to heart are David and Tom Gardner, co-founders of The Motley Fool. They know that today's market of fear and uncertainty has knocked down the prices for a lot of great companies -- creating opportunities for the long-term investor.
They started their Motley Fool Stock Advisor investment service in 2002, during the heart of another bear market, and their average returns are outpacing the market by a whopping 40 percentage points. Today, they're offering a 30-day free trial to the service, which includes two new recommendations each month, as well as their best bets for new money now.
If you'd like to see what they're recommending now -- and what they bet will profit from this bear market -- click here to get started.
Jim Mueller
didn't own shares of any company mentioned at the time of publication. Best Buy and WellPoint are Motley Fool Inside Value recommendations, and International Paper was chosen by Income Investor. Best Buy is also a choice at Stock Advisor. The Motley Fool owns shares of Best Buy. Everyone says get out, but our disclosure policy never leaves when it's told to.
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