The market is up.
If you didn't know, where have you been? The financial media (this website included) has spent a considerable number of keystrokes chronicling the fact that the Dow has blown by 12,000 and was up more than 16% in 2006.
Of course, as recently as a few months ago, investors were downright spooked. As The Washington Post reported at the time, market volatility had investors moving into cash throughout the summer: "Some $45 billion flowed into retail money market mutual funds alone over the first half of the year, according to Money Fund Report."
Money on the table
That move to money market mutual funds was understandable. After all, studies show that the pain of losing money is far stronger than the joy of making it. Yet moving out of stocks and into cash because stocks are down is not a winning investment strategy. While we think it protects us from losses, it actually prevents us from making serious money.
And the recent market upswing proves that theory hook, line, and sinker. If you were sitting on the sidelines in August and September, well, you missed out. That's because this get-in-get-out strategy is the polar opposite of "buy low, sell high," which, although a mystical and annoying investment mantra, should be the goal of all stock investors.
How can you expect to buy low when you come off the sidelines only after bull runs?
Too late to the party?
Just because the Dow is back, it doesn't mean you've missed out on all the bargains.
Many individual stocks remain well off their highs. This list includes bigger boys such as Motorola (NYSE:MOT), Legg Mason (NYSE:LM), TD Ameritrade (NASDAQ:AMTD), and Whole Foods (NASDAQ:WFMI), as well as smaller companies such as Hovnanian Enterprises (NYSE:HOV), Netflix (NASDAQ:NFLX), and bebe stores (NASDAQ:BEBE).
The real down-market solution
If you're sitting on the sidelines right now without the confidence to invest in equities, study the history of the U.S. stock markets. Even with all of their dips, drops, and bubbles, our markets have proved to be an incredible economic success. Over the past 75 years, equities have delivered an astounding 10.5% annual return.
And you -- yes, you -- can do even better than that if you hang on during drops and keep adding money to your investments when the prices are low. Here's how:
- Find superior businesses.
- Hold them for the long haul.
- Add new money to them regularly.
That's how Fool co-founders David and Tom Gardner are recommending their Stock Advisor members profit from this down market. And it's sound advice -- particularly because they've identified a list of more than 60 superior stocks worthy of your investment dollars.
Great minds think alike
John Templeton, whom Money magazine called "arguably the greatest global stock picker of the century," famously said that "the best time to invest is when you have money." That's because, in the end, time matters more than timing.
So if you have the money, now's a great time to invest. And Stock Advisor can help you find the right places to do it; the service's picks are collectively beating the S&P 500 by some 45 percentage points. Click here for a free 30-day trial.
This article was originally published on July 19, 2006. It has been updated.
Tim Hanson and Brian Richards have "Janie's Got a Gun" stuck in their heads, for no apparent reason. They both own shares of Whole Foods. Whole Foods, Netflix, and bebe are Motley Fool Stock Advisor picks. The Fool has a disclosure policy that would mock and deride the Energizer bunny.
