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True visionaries often look like idiots for years. But when the time comes, they strike -- and reap gains while others wonder what hit them.

During most bull markets, there comes a time when stocks start looking ridiculously overvalued. Consider, for instance, the most recent bull run, which ended last year:

  • Google (Nasdaq: GOOG  ) hit $700, and we still wanted more from the search provider and its peers.
  • Apple (Nasdaq: AAPL  ) saw its shares vault over the $200 mark, trading at 40 times earnings and looking unstoppable.
  • Even shoe sensation Crocs managed to crack $70, making us wonder whether anyone would ever learn the timeless lessons that fad-following investors in stocks like Krispy Kreme and Boston Chicken learned the hard way.

Yet it takes courage to wait on the sidelines, hoping that an irrational market will finally come to its senses. It takes patience to pass up chances to invest in companies you believe will do well over the long haul, simply because they happen to be overpriced. It takes discipline to watch your friends talk up their big scores in the stock market while you silently wait for the big crash you know has to come eventually.

Take heart, patient investors. Your time is now.

Come 'n' get it
The bear market that took stocks by storm over the past year has pushed stocks to levels they haven't seen in years. Even when you use the S&P 500's lows of Oct. 9, 2002, as a comparison point, you can still find plenty of stocks selling at even lower prices than they fetched back then.

Consider, for instance, these well-known names:


Price On Oct. 9, 2002

Current Price

Pfizer (NYSE: PFE  )



Dell (Nasdaq: DELL  )









MGM Mirage (NYSE: MGM  )



Source: Yahoo! Finance. 2002 price adjusted for splits and dividends. Current price as of Dec. 9, 2008.

In case you don't remember, the mood back in 2002 was pretty dour. Yet even if you missed out on these stocks back then -- even if you sat on the sidelines for more than six years, watching many of them vault skyward -- you now have a chance to get in even more cheaply.

But wait, you're saying. Now that I've waited this long for a bargain, why shouldn't I stay on the sidelines just a little longer and maybe get even better prices?

When you've won, it's easy to get greedy. But don't lose sight of why you waited in the first place.

Curbing your greed
It's impossible to predict just how low stocks will go in a bear market. Just as bull markets push valuations up to irrational extremes, the gloomy mood that accompanies big market drops feeds on itself, pulling share prices lower and lower. That's why many investors look for a capitulation event, in which downward pressures bring stocks tumbling one final time before a recovery begins.

But it's hard to spot the bottom. For instance, did you buy shares three weeks ago? The S&P is up 20% since then. That may prove not to be the bottom. But are you sure?

Even the best investors don't try to pick bottoms. Super-investor Warren Buffett has taken plenty of criticism for investing in Goldman Sachs (NYSE: GS  ) and General Electric (NYSE: GE  ) when their stocks were much higher. But even though he didn't get the bottom-dollar price, he did make the investment. And in the long run, that's something he'll have that many of his naysayers may well not -- as they wait for a final dip that never comes.

So, if you're lucky enough to have cash on the sidelines, waiting for the perfect moment to invest, then now's your chance. It's payoff time -- your reward for your discipline and patience is here. But it won't stay forever; if you don't go ahead and buy those long-awaited stocks you've wanted for years, then today's bargains could be gone in an instant.

For more on how to capitalize on today's opportunities, read about:

If you're looking for great value, now's the time to pounce. Our experts at Motley Fool Inside Value can help. Every month, we comb through Wall Street's wreckage to find high-quality stocks at bargain prices. Find out what we can offer you with a free 30-day trial.

Fool contributor Dan Caplinger has learned to love risk. He owns shares of GE. Pfizer is a Motley Fool Income Investor selection. Pfizer and Dell are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Crocs if a former pick of Motley Fool Hidden Gems Pay Dirt. The Fool owns shares of Pfizer. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is ready to pay off for you.

Read/Post Comments (5) | Recommend This Article (23)

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 December 10, 2008, at 1:44 PM, justaguy12 wrote:

    Ummmm...nope. Dan Caplinger is a nobody, who is performing the fool's errand of drawing the suckers into the tent.

    I'll go with the guys who called the Dot Com AND the housing bubble: The Yale finance professer Robert Shiller. Here is his quote in today's Fortune mag:

    "In terms of the stock market, the price/earnings ratio is no longer high. I use a P/E ratio in which the price is divided by ten-year average earnings. It's a really conservative way of looking at it. That P/E ratio got up to 44 in the year 2000, which was a record high. Recently it was down to less than 13, which is below the average of around 15. But after the stock market crash of 1929, the price/earnings ratio got down to about six, which is less than half of where it is now. So that's the worry. Some people who are so inclined might go more into the market here because there's a real chance it will go up a lot. But that's very risky. It could easily fall by half again."

  • Report this Comment On December 10, 2008, at 1:47 PM, justaguy12 wrote:

    Also, please note that the 3 month T-Bill is now paying NEGATIVE INTEREST for the first time in history...which means that the big money guys (that's the guys we need to make the market go up, folks) are willing, suddenly, to TAKE A GUARANTEED LOSS NOW in order to assure safety by buying Billions in 3 month T-Bills.

    They know something we don't folks. This market is going down, down, down.

  • Report this Comment On December 10, 2008, at 1:54 PM, justaguy12 wrote:

    ..and here is the quote from Jim Rogers in Fortune:

    "In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes."

  • Report this Comment On December 11, 2008, at 7:19 AM, afamiii wrote:

    In this market you need enormous margins of safety. Look in industries with products people need to buy. Look for companies with an unmistakeable competitive advantage. Look for companies who's free cash flow is providing a better return than a high quality bonds or who's price is below book value. Don't pay for growth unless it is already in place in the form of forward orders from AAA customers and even then be sceptical.

  • Report this Comment On December 13, 2008, at 6:38 AM, wuff3t wrote:

    If you're going to invest based on what the average P/E ratio of the market was just after the 1929 crash, you might never invest again. That really makes no more sense than basing your decisions on the average P/E ratio during the Tec boom.

    What the author is suggesting is that you should have an idea, for individual stocks, of what you think an attractive price is, and if you're lucky enough to see the stock come back down to that price, buy. Seems sensible enough.

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