Full Speed Ahead for Equity Exposure!

If only the stock market were as easy to read as a traffic signal -- we'd all be rich in no time. When the situation looks bad, a giant red light would flash, warning us to stop and keep our money somewhere else. But as soon as things start to look up, the green light would pop on, letting everyone know that the road ahead is clear.

Unfortunately, investing is never as straightforward as getting an easy-to-read "stop" or "go" sign. But there are signposts along the way to help us on our investing journey. And at least one fund manager now sees those signposts pointing to an opportunity to load up on stocks.

Getting back in the game
Jim Goff, director of research for Janus Capital Group and manager of the Janus Global Research Fund (JARFX), recently announced that the time for defensive investing has passed -- that now is the time to get back into the market. There may be some volatility still ahead, but he believes the benefits of being fully invested outweigh the risks.

And he's putting his money where his mouth is. His fund's cash stores have been whittled down to a mere 2% in recent weeks as he has stocked up on beaten-down companies with strong cash flows.

Right now, Goff is partial to agriculture stocks such as top holdings Potash Corp. of Saskatchewan (NYSE: POT  ) and Syngenta (NYSE: SYT  ) , as well as smaller holding Bunge Limited (NYSE: BG  ) . He has also stepped up his investment in solar energy companies such as Cypress Semiconductor (NYSE: CY  ) and SunPower (Nasdaq: SPWR  ) in anticipation of the industry's future growth, which he expects to be substantial.

Discounting the market
So should you listen to Jim Goff and pile back into equities (assuming you ever got out in the first place -- and I hope you didn't!) in the belief that the worst is over?

There may be more red ink to come this year, but historically, the stock market has typically taken a turn for the better long before the actual recession is over. If you want to get in on the bounce, you've got to be early.

Valuation-wise, stocks are relatively cheap. As of April 30, the S&P 500 was trading at 14.2 times projected earnings. Going back to 1989, Morgan Stanley data found that the average was 16.5. But there are lingering concerns that rising levels of inflation will mute future earnings, thus dampening any future P/E expansion. And if a prolonged recession takes hold, there's a good chance that corporate earnings will take a hit, keeping a lid on stock prices.

The best we can get from the market right now is a yellow caution signal. While stocks appear to be cheap, there are some economic obstacles ahead. The stock market may limp along for several quarters or years to come, offering positive but unspectacular returns.

Looking at the big picture
Trying to predict and time the market is like a dog chasing its tail -- you get dizzy without getting anywhere. Asking if now is a good time to get back in the market is essentially a short-term question, because you should always be in the market.

Look at it this way: The stock market goes up twice as often as it goes down. That means that over the long run, you win by staying in the game.

In fact, taking a long-term view is one of the guiding principles of the Fool's Champion Funds investment service. We know that folks may want a helping hand every now and then, especially in confusing markets like we see now. And what better place to get insights from the industry's top minds than from the best mutual funds in the business?  You can check out all our fund picks and see what Champion Funds has to offer right now with a free 30-day trial. 

So if you've been sitting on the sidelines, waiting for the perfect opportunity to sneak back into the market, get up and get in the game! As long as you keep your eyes on the long-term horizon, it doesn't matter what color signal the market is flashing today.

Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Click here to find out more about the Fool's disclosure policy.


Read/Post Comments (3) | Recommend This Article (21)

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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 May 21, 2008, at 7:48 PM, simonkathrein wrote:

    I don't know you guys. I'm no expert, but I'm very concerned about the state of the US.

    I've been reading a lot of Harry S. Dent's stuff....and he seems to feel that 2010 is the beginning of a depression (he has about 9 solid points to consider including the retiring baby boomers). You couple that with the US debt, the subprime issues, lack of confidence in the US econonmy and the US dollar...

    I think the economy is in huge trouble.

    I'm planning to keep my retirement money in guaranteed stuff for now...and play long term straddles on some of the most volitile large caps.

  • Report this Comment On May 22, 2008, at 11:27 AM, kahunacfa wrote:

    Defensive investing is always correct. Warren E. Buffett's Rule Number of investing is: Never lose money.

    I generally agree, except I do go out a little more on the risk profile. I mostly invest in Technology and Healthcare companies or consumer companies with "Bullet-Proof" brands: A.T. Cross, Tiffiney, Sturm Ruger(RGR), Microsoft(MSFT), Pfizer(PFE) @ < $22, Taser(TASR) @ Z$7 or less, and Xerox(XRX) at $4 in the year 2000.

    The Market is not attractive at fourteen times 2008 earnings, the market is almost always attractive at eight times earnings or less, such as December 1974.

    Kahuna,CFA

    Commercial: Please visit "My" MF Message Board: <i>KahunaCFA's Investment Musings</i>. There I "think-out-loud", bringing companies into the focus of attention BEFORE I buy them.

  • Report this Comment On May 28, 2008, at 12:32 PM, biotechmgr wrote:

    Unfortunately this type of article is typical of the general fodder that is fed to the average investor to sucker them back in to full equity exposure.

    I agree with the first commenter. The economy is headed for unprecendented trouble. Bear market rallies will occur such as the one wrapping up just now. When the bear starts roaring again, the realization that "investing for long term", "looking at big picture", "don't miss out", and "valuations are attractive" messages are not appropriate in this extraordinary and risky environment.

    It is "different" this time, but not in the way most think. There is a steady deterioration in economic conditions that will underpin an eventual deflation and depression.

    Don't be "fooled" by the continual stream of bullish nonsense fed to you on this site. Protect your capital at all costs.

    If you want an alternate view of things then go to prudentbear.com and elliottwave.com

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