How long do you think it will take before the markets are back to normal? A matter of months?
Think again. And if your investment strategy depends on the markets getting back to normal in the near term -- i.e., if you're investing in index funds or big, actively managed mutual funds that act like indexes -- you really need to think again.
Think twice, buy once
It's not that I'm sure the markets won't get back to normal anytime soon. But for the first time in my investing lifetime (I bought my first stock 27 years ago), I'm not sure they will. We could see a new bull by this time next year -- or we could be in for years of churning, Japanese-style.
Long-term, I'm confident that Americans' knack for real innovation will lead to sustainable earnings growth and a resumption of the markets' long-term upward trend. But I also know that a new high in the S&P 500 could be years away.
That means that index funds -- and all of the other "good" investments that act like index funds, including most of the big actively managed mutual funds -- aren't a sure-thing road to profits right now. If you're 10 or 15 years from retirement and you're wondering how to make the most of the capital and time you have left, index-dependent strategies might not cut it.
We need to be smarter than that.
The only way we have left
There are people who are going to make huge profits in the stock market in the next several years, no matter where it goes. Some will do it by shorting doomed stocks or trading the volatility. Others -- including ordinary investors working with IRA accounts -- will do it the old-fashioned way: with great stock picking.
No matter what happens in the market, no matter what happens in the economy, there are always companies with tremendous growth stories, overseas gems rising to greater prominence, good companies in disliked sectors that can be bought crazy-cheap, and big solid firms that pay great dividends through good times and bad.
Easier said than done
But picking the best stocks isn't easy during bull markets -- and it's even harder now, with economic uncertainty and no overall rising market trend to cover our mistakes. The "obvious" picks in the "obvious" categories might not be as obvious as they seem.
Be honest with yourself: Do you know how to find the answers to these questions?
- Governments all over the world will be investing in infrastructure projects -- but is Caterpillar
(NYSE:CAT)really a buy?
- Cell phone use is exploding in the developing world -- is China Mobile
(NYSE:CHL)a safe bet or a bad one?
- Would a post-Jobs Apple
(NASDAQ:AAPL)continue to thrive?
- How strong are Starbucks'
(NASDAQ:SBUX)finances and prospects?
- Is the book closing on Borders
(NYSE:BGP), or is it a steal at current prices?
- What are boardsports duds retailer Volcom's
(NASDAQ:VLCM)chances of a wipeout if the economy keeps stinking?
- Can Pfizer
(NYSE:PFE)really sustain that 7%-plus dividend yield?
You get the idea. It's easy to buy big names and hope for the best, but if the big names aren't going to do much more than track the market, that could mean years of lost returns. You need to be able to see what's really going on under the hood of a company in order to figure out if it's likely to outperform -- and that takes specialized knowledge.
Here's the good news: If you're smart enough to have read this far, you're smart enough to acquire that knowledge. And even better: You can do it in just a few evenings for less than $20 -- and get started with some great stock ideas at the same time!
A quick, cheap -- and complete -- education
Years ago, Founding Fools David and Tom Gardner published a series of widely acclaimed books outlining the Foolish approach to personal finance and stock picking. But their brand-new book -- The Motley Fool Million Dollar Portfolio: How to Build and Grow a Panic-Proof Investment Portfolio -- goes far beyond anything they've published before.
Cutting through the market noise and finding the best stocks is easier than most people think. You don't need a CFA or thousands of dollars in education to do it. You just need the basic knowledge and clever tricks included in this new book -- and the desire to succeed.
Do you have it? I hope you do, because if you order it today, we'll also include a complimentary copy of Stocks 2009: The Investor's Guide to the Year Ahead. It's the latest in a long-running series considered by many to be the definitive annual resource for market-beating stock ideas. Stocks 2009 is a $99 value all by itself. But it and the new book can be yours for less than $20 -- if you order now.
Fool contributor John Rosevear still owns the shares of Apple he received for his 14th birthday. He has no position in the other companies mentioned. Volcom is a Motley Fool Hidden Gems pick. Pfizer is an Income Investor recommendation. Starbucks and Pfizer are Inside Value picks. Starbucks and Apple are Stock Advisor selections. The Fool owns shares of Starbucks and Pfizer and has a well-read disclosure policy.