The Fool Answers: Is Now a Good Time to Buy?

When the Dow swings wildly from day to day, and when the government takes measures our country hasn't seen since the Great Depression, and when banks that predate the Civil War up and fail, the average investor is bound to have some questions.

Last week, we asked you to ask us the questions on your mind. Over the coming days, Fool advisors, analysts, and editors will be answering a select group of these questions. (With one caveat: Fools are not sanctioned to provide personalized investment advice.)

Is now a good time to buy? Is it a great time to buy? I'm so unsure of myself that I just have frozen up. ... Do you think that stock prices will fall even more? The Dow has really taken a big hit -- is this likely to continue, or will it stop?

Joe Magyer, senior analyst, Income Investor: For long-term investors, now is an outstanding time to buy. I can't tell you where the market is going in the short-run. And, frankly, anyone who tries to is full of it. But take a step back from the Yahoo! Finance page you keep refreshing and ask yourself this: Are you more interested in what your retirement account is worth today or 5, 10, even 20 years from now? Unless you need to pull cash out of your account in a big way over the next couple of years, you should be buying. Specifically, best-of-breed operators with healthy cash flows and strong balance sheets.

There are some outstanding, low-risk values out there today. Blue chips like ExxonMobil (NYSE: XOM  ) , Coca-Cola (NYSE: KO  ) , and Kinder Morgan Energy Partners (NYSE: KMP  ) boast safe, sizable dividends that will pay you while you wait for the market to turn. Why settle for a 2.5% money market yield when you could lock in a similar or sweeter yield on a blue chip with tremendous upside? Short of a massive calamity, it is difficult to picture a scenario where those names don't crush the returns on fixed income plays over the next five years.

It takes nerves of steel to buy in this market, but remember that no great investor ever made their fortune buying high and selling low. So keep making those 401(k) contributions and resist the urge to stash your cash under your mattress. Years from now, when the value of your retirement accounts actually matters, you'll be very glad you did.

Isn't there a better way? This game seems rigged against the individual investor. Baby Boomers are on the verge of retirement, and this is what they get for decades of hard work -- a portfolio that's cut nearly in half from a year ago.

Rich Greifner, senior analyst, Million Dollar Portfolio: You're right -- the stock market is rigged. But it's rigged in favor of the individual investor. As I mentioned in an article last week, many mutual fund and hedge fund managers need to raise cash in a hurry to meet margin calls and/or redeem their investors. In many cases, this means those fund managers are forced to sell shares indiscriminately, no matter the company's fundamentals or future prospects.

Fortunately, Wall Street's loss is the individual investor's gain. Thanks to these fund liquidations, we have the opportunity to purchase shares of great companies like Microsoft (Nasdaq: MSFT  ) , Apple (Nasdaq: AAPL  ) , and Starbucks (Nasdaq: SBUX  ) at a discount to what I believe are their intrinsic values. That's a time-tested recipe for market-beating returns.

To your second point: Such a steep drop in stock prices can certainly be unsettling, especially for investors already in or nearing retirement. But it's important to bear in mind the difference between current market prices (highly volatile, determined by investors' emotions) and intrinsic business value (relatively static, determined by a company's earnings potential). Over time, the stock market has shown us that price and value tend to converge -- and that likely means today's depressed prices will be a short-lived phenomenon.

I have a SIMPLE IRA through work with Fidelity. Do you have any suggestion of what funds would be best for the long term (as I am only 23 years old)? I wasn't really sure which ones were the best so I picked a couple of random ones.

Amanda Kish, newsletter advisor, Champion Funds: Fortunately for investors, mutual funds are one of the best tools around when it comes to saving for retirement. Unfortunately, there are a lot of bad funds out there that can sap the life right out of your portfolio. You've got to put some time in and do some digging before making your fund selections. First of all, look for funds with a manager or management team that has been around for a long time, preferably at least 8 to 10 years. It's been proven that funds with longer-tenured managers tend to perform better than funds with newbies at the helm. Make sure fund expenses are reasonable -- there's no reason to buy an expensive fund because I guarantee you there is a cheaper one available that can do the job just as well. Never buy a fund with a front-end load, either.

Finally, take a look at long-term performance and see how the fund has performed in both good and bad market environments. Ideally, you want to choose funds that participate in the good times but that also protect on the downside. Don't look at short-term return numbers; they are not really predictive of future performance. Finally, the Fidelity SIMPLE IRA offers access to some decent fund families, including Third Avenue, Oakmark, Neuberger Berman, Sound Shore, and Yacktman. You're sure to find a few great fund options there.

The Motley Fool would like to answer your questions. What issues would you like to see addressed? Simply email us at AskTheFool@fool.com.

For related Foolishness:

Joe Magyer and Rich Greifner own shares of Starbucks. Amanda Kish does not own shares of any companies mentioned. The Motley Fool also owns shares of Starbucks. Coca-Cola, Starbucks, and Microsoft are Motley Fool Inside Value recommendations. Starbucks and Apple are Stock Advisor selections. The Motley Fool is investors writing for investors.


Read/Post Comments (11) | Recommend This Article (26)

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 22, 2008, at 10:31 AM, ReillyDiefenbach wrote:

    "today's depressed prices will be a short-lived phenomenon"

    Well, I'm glad you're so optimistic. I don't see anyone hiring, no one buying a car, no one selling a house for more than they paid for it. Pretty basic stuff, really. Perhaps any of you can name a dividend paying stock that hasn't lost 30 percent of its value in the last year. My cash hasn't.

    So, yes, I will absolutely stay in cash until some measure of competence in the management of the economy is made manifest. Electing Barack Obama would be a good first step on the road to recovery.

  • Report this Comment On October 22, 2008, at 1:55 PM, LodestarX2 wrote:

    How is Obama planning on fixing the economy? Yes, I've heard his "share the wealth" plan - if you think his little socialist policies will get our economy back on the right track, good luck with your future investments. Perhaps you should put your money in China and Russia, even Venezuela - these governments love to share wealth, but mostly wealth created by others.

  • Report this Comment On October 23, 2008, at 10:57 AM, ReillyDiefenbach wrote:

    You say socialism as if it were a bad thing.

    Have you checked the standard of living in France lately? The contrast isn't flattering to the U.S..

    What is McCain's plan? Borrow some more money from China and sow it from helicopters? Free Wall Street from unfair regulation? Send ten billion a month to Iraq? Give more money to billionaires? How's that been working for you?

    How about a tax cut for every American making under 250 thousand a year? How about rich people paying more of their fair share? We used to have a ninety percent tax bracket which coincided with the time when we had the strongest middle class and the highest standard of living in the world.

    How about some basic safety standards for banking and investing? Sound good? America seems to think so, thank God.

  • Report this Comment On October 24, 2008, at 10:50 AM, celticspirit wrote:

    Sorry Truth you've got to be kidding me. You're saying a great way to pay less taxes is reduce your profits by hiring more people and giving them your money! Yeah, you will pay less taxes but you won't make any money either. Lets say you earn $250k and pay let's say 10% of it in tax. You have 250k-25k left =225k. Ok. You don't like that so you hire 5 people and pay them 50k each. Now your profit is 250k-250k i.e nothing and you don't pay tax. Whoopee! You're left with, oh yes, a big fat zero. You only hire more people to make more money. If it costs you 50k to hire someone you want that employee to make more than 50k or there is no point in hiring them. Don't ever try and run a business with your philosophy!

  • Report this Comment On October 24, 2008, at 1:31 PM, jkwilson78 wrote:

    Wow!

    It's very scary how so many people think that taxing the risk takers, investors, business owners and employers of this country will truly benefit the entire country.

    Businesses are in business for profits not to employ people, it may sounds bad and horrible and all that jazz but that is the reality.

    Business exist to make money ==> if profits are threatened ==> expenses are eliminated ==> employees let go ==> unemployment goes up ==> consumer confidence goes down ==> spending decreases ==> stocks go down ==> profits for business continue to dwindle ==> more expenses eliminated layoffs intensify , etc etc

    Now give business incentives that will increase profits and magically things turn around in time.

    Everyone focuses on the short term gut reactions and quick fixes.

    Yes the economy is bad, stocks and investments are extremely shaky thus the time to invest for the long term if you want to make more money.

    Saying now is a bad time to buy because things are bad defeats the whole purpose of people investing.

    A good rule of thumb is to see what the majority of people are doing and then figure out a way to do something completely opposite.

    Don't be a sheep!

  • Report this Comment On October 24, 2008, at 2:04 PM, StocksBuyorSell wrote:

    I think we have further to go still before it is time to jump back into the market. However some stocks have already been crushed. so it depends on the investment.

    http://stocksbuyorsell.com/investment-general-discussion/39-...

  • Report this Comment On October 24, 2008, at 5:32 PM, tiu9you wrote:

    I think the market will retest 7800, for now, no bet is the best bet.

  • Report this Comment On October 25, 2008, at 11:18 AM, Jest4kks wrote:

    Both of you are correct. It is called moderation. The class discrepancy cannot be allowed to get too top heavy, that is the rich carrying too much of the capital wealth because it means that the lower classes cannot afford to purchase the goods and services that they are offering to continue to keep getting rich. Consider that there is (or ought to be) a finite amount of money to go around. Too much up top and not enough at the bottom and middle then a massive correction (redistribution) must occur in order to perpetuate the cycle. In a democratic society we have an institution that provides a mechanism for this to happen it is your vote. In a non democratic society we call it a revolution. Be glad you live in a democracy where we can lean a little to the left when we need to and a little to the right when we need to without flushing the entire thing down the toilet.

  • Report this Comment On October 25, 2008, at 11:28 AM, goatsnuff wrote:

    Goatsnuff's Plan.

    100k that Mr. Snuff does not need for the next 10 years to survive sitting in a money market. The snuffster just committed the 1st 20k to the plan below buying high yield/good yield blue chips like DUK, T, MRK, KMB, KFT, DD

    20k now (Already done at market interday low around 8200 on 10/24)

    20k if the market hits interday 7900

    20k at interday of 7400

    20k at interday of 6500

    20k in reserve to buy in a depression crash at 5500

    We may miss getting all in before this turns but we won't miss out on everything. All buying will be done with limit orders at specific targeted prices based on market over shoots on sell off/Panic days.

    Also hold 5k of Nue bought on 10/23 @33.125 before plan was initiated on 10/24. Dumb luck for goatsnuff. Nue was the only thing in the group that went up on 10/24. Better to be lucky than smart some days.

  • Report this Comment On October 27, 2008, at 12:51 AM, galwes1 wrote:

    What has the Motley Fool Staff been smoking anyway. Here is one of their quotes from the above article:

    "Fortunately, Wall Street's loss is the individual investor's gain. Thanks to these fund liquidations, we have the opportunity to purchase shares of great companies like Microsoft (Nasdaq: MSFT)."

    What a joke. Microsoft stock has done nothing for the last 6 years. It's worth less now than it was in 2002.

  • Report this Comment On February 20, 2009, at 5:10 PM, andys2i wrote:

    I don't know when the "right" time to buy will be. No one does. In reality buying a house is a very personal decision for every family based on many factors. For me ( http://www.savingtoinvest.com/2009/02/buying-home-in-current... ), I needed more place for an expanding family, am planning to stay in my current location for a while and most importantly have sufficient funds to put down a healthy deposit while still having emergency funds set aside.

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