Now Is the Safest Time to Buy Stocks

Unless you've been living under a rock -- check that, several rocks -- you know what I'm about to tell you: Stock markets worldwide are down substantially this year. Here's a representative update on the carnage:

Country

YTD Stock Market Return (2008)

USA

(40%)

China

(64%)

England

(36%)

Brazil

(46%)

Japan

(42%)

Data through 10/24/08.

While you'll hear some talking heads on TV tell you this is a "once-in-a-lifetime" event, the fact of the matter is that these returns resemble what we saw year to date around this time in 2002 ... just six years ago. Take a look:

Country

YTD Stock Market Return (2002)

USA

(24%)

China

(7%)

England

(21%)

Brazil

(29%)

Japan

(21%)

Data from 1/1/02 through 10/24/02.

Yes, it's worse this year, but it's not that much worse (and China, for its part, was not as hugely overvalued at the beginning of 2002 as it was at the beginning of 2008).

Now for some context
Knowing that, let's take a look at how stocks in these countries have performed from Oct. 24, 2002, through today.

Country

Return, 10/24/02 to 10/24/08

USA

3%

China

22%

England

0%

Brazil

245%

Japan

(2%)

Despite all the talk of financial calamity, most of us are basically where we were six years ago. That's not good, of course, but it's also not the end of the world. Incidentally, if you've owned Brazil for the long term, you've improved your lot in life quite a bit.

What this means for you
All of this is to say that the safest time to buy stocks is not when the market is optimistic, but when it's extraordinarily pessimistic. That was the case in October 2002, and if you bought then, you got in at such low valuations that the current crisis -- a crisis that has cost trillions in wealth, taken down several major investment banks, and garnered extra-large headlines around the world -- has merely returned you to your original cost basis.

That's not to say we're taking these events lightly here at The Motley Fool. Instead, our goal is to help more individual investors understand that this is not the time to run terrified into cash, but actually an attractive time to put money to work around the world.

The key, however, is to know your facts.

Just the facts, ma'am
When you know your facts about an investment, you're able to see through the market panic, forced selling, and all the rest, and see a company that you'd like to own for the next 10 years or more. And companies like this exist in every country in the world.

Take Intel (Nasdaq: INTC  ) , for example. I'm not normally a U.S. large-cap guy, but I keep hearing the name mentioned by investors I respect. The California-based chip maker has dropped nearly 50% year to date, and according to my calculations, it's now being valued as though it will never exceed 5% annual growth ever again. Yet what we know about Intel is that its products remain in high demand, and it has $10 billion in net cash, a crack R&D team, and a decades-long track record for operational excellence.

If we stay in a global recession forever and Intel never exceeds 5% growth ever again, then at today's prices, you're paying fair value and getting a 4% dividend. If it does better than that thanks to newer, cheaper chips that are included in products sold by top names such as Dell (Nasdaq: DELL  ) , Apple (Nasdaq: AAPL  ) , Hewlett-Packard (NYSE: HPQ  ) , and many more, then you're going to make pretty good money. Those are the facts.

More facts
Go south to Argentina and you'll find Cresud (Nasdaq: CRESY  ) , an agricultural company that, according to our calculations at Motley Fool Global Gains, is being valued as though its farmland is worth just $45 per acre. For comparison, farmland here in the States can sell for thousands of dollars per acre.

Similarly, two of our top emerging-markets telecom picks -- Turkcell (NYSE: TKC  ) and Telkom Indonesia (NYSE: TLK  ) -- are priced for 3% and 4% growth, respectively, despite the fact that both countries should have GDP growth rates that exceed those numbers in the near term and that Indonesia currently has a cell-phone penetration rate of just 40%.

Here's what you can do about it
Indeed, expectations for stocks around the world are low, and that's what makes now -- despite all of the ominous headlines -- the safest time to invest.

At Global Gains, we're recommending that investors take particular advantage of the panic to increase their exposure to previously premium-priced overseas stocks. By doing so, we expect you to improve your returns and achieve greater diversification.

After all, remember what a little Brazil would have done for you between 2002 and today.

To take a look at all of our top international stock picks for new money now, click here to join us at Global Gains free for 30 days. There is no obligation to subscribe.

Tim Hanson is a Motley Fool Global Gains analyst. He owns shares of Cresud. Cresud, Turkcell, and Telkom Indonesia are Global Gains recommendations. Telkom Indonesia is also an Income Investor choice. Intel and Dell are Motley Fool Inside Value recommendations. Apple is a Stock Advisor pick. The Fool's disclosure policy stands by this article.


Read/Post Comments (12) | Recommend This Article (38)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2008, at 6:16 PM, tomsaffell wrote:

    Interesting article.

    I did some analysis of my own on whether or not now is a good time to buy.

    I looked at the return on an S&P 500 index investment made at a time when the market was down, vs. an equivalent investment at any random point in time. (I did this for many, many point in time, on data from 1871 to 2008)

    It looks like (historically) for medium term (5yr / 10yr) investments, buying when the market has fallen 20%-50% can significantly increase returns vs. investing at any random time. For longer term (20+ years) the advantage isnt as obvious.

    Beware though, the Great Depression show that one can still lose money on a 5-year investment even when the market is down 20% to 50%...!

    Check out the details and charts at saffell.wordpress.com

  • Report this Comment On October 27, 2008, at 6:25 PM, latinpicker wrote:

    I should be very careful before recommending Cresud. A couple of things that explain why $45 the acre might not be so cheap:

    a) Soybean and commodities prices in general have been tanking, so the real cash flow for the company is hard to determine.

    b) The Argentine government not only doesn't subsidize production but also heavily taxes agricultural exports.

    c) The CRESUD controlling shareholders (same that control IRSA) don’t have exactly the best of reputations.

    d) You need to see how many of those acres are in the unproductive part of the Patagonia.

    e) Finally, the Argentine Government is trying to nationalize the Argentine pension funds, which means that a lot of shares from Cresud will be dumped into the market in the following Qs.

    All in all, the market has been crazy lately, but in the case of Cresud there are so many bad news that the market might be actually getting it right….there are a lot of risks here.

  • Report this Comment On October 27, 2008, at 8:07 PM, TMFMmbop wrote:

    There definitely some risks with Cresud, but $45 per acre? I think you're being compensated for them today. That said, I would really like for the Argentine government to become a little more friendly towards business and property rights.

    Tim

  • Report this Comment On October 27, 2008, at 10:25 PM, mapesbury wrote:

    These recommendations seem highly irresponsible. Whilst the individual companies - Cresud, Turkcell and telecom indonesia may have merits, you completely ignore significant country/currency risk. Each of these countries is experiencing capital flight, and maybe worse (IMF help may be needed too as external debt for these countries is very high).

  • Report this Comment On October 27, 2008, at 11:06 PM, bgelldawg wrote:

    I don't see any dates on your special free report. It states that KMP/KMR is $60 per share. It hasn't been that price for a while. How long ago were these reports written?

  • Report this Comment On October 28, 2008, at 12:02 AM, maiday2000 wrote:

    With what appears to be an upcoming Obama administration and a sharp lurch to the left, I wouldn't be investing in any stocks right now. Anyone care to research what the New Deal did to the markets? As bad as ours could get, international markets could be that much worse...

  • Report this Comment On October 31, 2008, at 4:56 PM, surgcare2169 wrote:

    We have been hearing since march that every week has been the bottom and it was time to buy stocks and if you did you would have lost your shirt .Statistics are for losers . You can pick any kind of stock or time period to justify any point of view , positive or negative . The fact of the matter is the eonomy is in very bad shape , otherwise the government would not be taking all kinds of drastic action to save the economy . To recommend buying stocks under these circustances is irresponsible .Shame Shame Shame

  • Report this Comment On October 31, 2008, at 5:36 PM, badsituation wrote:

    all these are base on historial data without consider the current economic situation. If the unemployment rate increase to 10% (which I think is very possible). then the market will still go down. I think a lot of people forget about all the future price of stocks is base on the future of the economic.

  • Report this Comment On October 31, 2008, at 10:12 PM, Dadw5boys wrote:

    According to his reasoning then all the banks should be $26.00 stocks. I agree because Citi has provided backup fiancing for MS and Goldman in the past year. I don't know why they did it to help them get over a rough spot then MS and Goldman knock Citi saying sell it short lol.

    Experience has taught me that those making the most noise about someone else are the very ones who need to be looked at very close. Never trust any business that downgrades another when they are all taking Government Money for making the same mistakes with loans investments. They have to distract the investors to hide their problems.

    I don;t beleieve Citi has that big a problem even with the credit cards. Citi has been limiting the Credit Card Balances of it Customers for 4 years now. They have also been setting aside an extra 2 % to cover losses. So I will be buying more Citi Group. See you in the winners circle.

  • Report this Comment On November 01, 2008, at 2:31 AM, JimRonBob wrote:

    We have learned from 38 years of analysis, not mental massaging, but securities analysis: that you can really make serious large profits by investing in a blue chip stock like IBM. But it takes certain rules and patience. IBM always comes back from a downdraft (such as now when it is around 90 a share) with a positive result.

    Here's the rule on IBM STOCK: When IBM goes below a PE RATIO of 16, or better yet 14; buy all of the IBM you can afford. And wait. Just wait for the PE to reach 24. When IBM's PE Ratio is over 24 (or 212 if you are not gutsy) SELL all or most of the IBM STOCK you hold. Put it in Money markets or something with low risk. Don't fret, you will get opportunity in the future do succeed again.

    During periods where you have to sit on the sidelines, what is happening is that the stock market is re-evaluating and adjusting the price of the stock. When the PE is too high, one of two things happens. First the stock price goes way down to make the PE about 18 to 20. Second there may be a new earnings announcement (whichis usual one month after the end of every quarter). Therefore the PE ratio is adjusted and you need to review where you are in the rule system above.

    When the earnings are great the PE tends change again and you may be in a position to BUY IBM or SELL IBM. If the earnings are not so good the stock price goes down and you may have a better opportunity as the PE may pass through 16 (or 14 in down or bear markets). Look at IBM;'s PE today and you will find that the earnings multiple should price the sotck at over 140 a share if the PE were about 24. THINK about it. DO you have other stocks that have worked this way for decades ?

  • Report this Comment On November 01, 2008, at 4:20 PM, TLMDrexel wrote:

    Hi,

    How can an article be taken seriously when the author reports that a stock market in England is down 40%?

    Catch a grip! Please.

    All the best,

    T.

  • Report this Comment On November 07, 2008, at 9:05 PM, journeywithme wrote:

    It's hard to know, for sure, if now is the safest time to buy. Especially for a novice like me who just started her investment journey. But, investing is about risk taking, is it not? Who knows where this economy will go in the next 2,5, or 7 years? But one thing for sure is that I think I would be very upset with myself if I did not try to take care of these undervalued stocks and build what could turn out to be a lucrative portfolio. Thanks for the posts and I am always open to suggestions. Be well.

Add your comment.

DocumentId: 763069, ~/Articles/ArticleHandler.aspx, 4/18/2014 8:46:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement