Tuesday's rally aside, it's been tough going in the stock market. The S&P 500 has been on a steady downdraft since October, posting a 15% decline. And according to my colleague Richard Gibbons, it will get so much worse than that.
What's even more troubling is that despite such a substantial decline, it's not clear whether stocks are cheap. Warren Buffett said as much earlier this week. And a recent Wall Street Journal article made the case for a further decline in P/E ratios given rising inflation and slowing economic growth. Even scarier, money manager John Hussman opined in a recent commentary that the S&P 500 wouldn't be a good value until "anywhere below the 1,000 level."
The 1,000 level? That'd be a 25% decline from here.
Good night, and good luck
That's a tough pill to swallow considering major S&P components Microsoft
It's true, however, that nothing in today's market is a clear slam dunk. Apple and Google continue to trade at premium multiples, Microsoft could still compromise its balance sheet in its chase for Yahoo!
That dismal outlook, however, is not the reason you should kiss your savings goodbye.
While stocks could go lower ...
Today's panicky market offers daily opportunities to build out relatively low-cost positions in great companies that you can hold for the next decade or more. While the pros are bearish on the next 12 months, remember that they have annual reviews to pass. You -- to be blunt -- don't.
While stocks could go lower this year, I remain confident that after dividends and capital gains, an investment today will not only be positive 10 years from now, but it should outpace inflation to boot. So if you can identify money you don't need in the meantime, kiss it goodbye and ... put it to work in your portfolio.
I eat my own cooking
Two stocks that I recently purchased are Starbucks
- A strong franchise with a durable brand
- A clean balance sheet
- Quality management in charge
- An opportunity to both grow operations and make current operations more efficient
Could the stocks go lower? Yes. Heck -- they have since I bought them! But I'm confident both will be fantastic long-term investments.
Rock 'n' roll all night
It's that long-term view that separates The Motley Fool and David and Tom Gardner's Stock Advisor research service from so many of Wall Street's offerings. We strongly believe that patience and the practice of adding new money to superior stocks on a regular basis are the best ways to outperform the market and achieve your financial goals.
We may look and feel dumb at points (as many of us do right now) but our returns over the past five-plus years tell the story: Stock Advisor picks are more than 35 percentage points ahead of the market on average.
You can start with Stock Advisor pick Starbucks, or you can see all of David and Tom's top picks for new money now by joining Stock Advisor free for 30 days.
Tim Hanson owns shares of Starbucks and CarMax. Microsoft, Starbucks, and CarMax are Motley Fool Inside Value recommendations. Apple is a Motley Fool Stock Advisor recommendation. The Fool's disclosure policy worships at the altar of Guitar Hero.