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Now Is the Safest Time to Buy Stocks

By Tim Hanson - Updated Nov 11, 2016 at 4:43PM

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Seriously.

Unless you've been living under a rock -- check that, several rocks -- you know what I'm about to tell you: Stock markets worldwide are down substantially this year. Here's a representative update on the carnage:

Country

YTD Stock Market Return (2008)

USA

(40%)

China

(65%)

England

(33%)

Brazil

(41%)

Japan

(40%)

Data through Dec. 30.

While you'll hear some talking heads on TV tell you this is a "once-in-a-lifetime" event, the fact of the matter is that these returns resemble what we saw year-to-date around this time in 2002 ... just six years ago. Take a look:

Country

YTD Stock Market Return (2002)

USA

(24%)

China

(17%)

England

(25%)

Brazil

(19%)

Japan

(21%)

Data from Jan. 1, 2002, through Dec. 30, 2002.

Yes, it's worse this year, but 20% also freaked people out pretty severely in 2002.

Now for some context
Knowing that, let's take a look at how stocks in these countries have performed from Dec. 30, 2002, through today.

Country

Return, 12/30/02 to 12/30/08

USA

0%

China

35%

England

11%

Brazil

229%

Japan

2%

Despite all the talk of financial calamity, most of us are still ahead of where we were six years ago. That's not good, of course, but it's also not the end of the world. Incidentally, if you've owned Brazil and China for the long term, you've improved your lot in life quite a bit.

What this means for you
There are two lessons to take from these tables. The first is that the safest time to buy stocks is not when the market is optimistic, but when it's extraordinarily pessimistic. That was the case in December 2002, and if you bought then, you got in at such low valuations that the current crisis -- a crisis that has cost trillions in wealth, taken down several major investment banks, and garnered extra-large headlines around the world -- has merely returned you to your original cost basis.

The second lesson is that it's important to diversify globally, because different countries are driven by different forces and will offer different returns -- and different valuations -- over time.

That's not to say we're taking these events lightly here at The Motley Fool. Instead, our goal is to help more individual investors understand that this is not the time to run terrified into cash, but actually an attractive time to put money to work around the world.

The key, however, is to know your facts.

Just the facts, ma'am
When you know your facts about an investment, you're able to see through the market panic, forced selling, and all the rest, and see a company that you'd like to own for the next 10 years or more. And companies like this exist in every country in the world.

Take Intel, for example. I'm not normally a U.S. large-cap guy, but I keep hearing the name mentioned by investors I respect. The California-based chip maker has dropped some 50% year to date, and according to my calculations, it's now being valued as though it will never exceed 5% annual growth ever again.

Yet what we know about Intel is that its products remain in high demand, and it has $10 billion in net cash, a crack R&D team, a stellar customer list that includes Comcast (NASDAQ:CMCSA), Emulex (NYSE:ELX), NCR (NYSE:NCR), and Disney (NYSE:DIS), and a decades-long track record for operational excellence.

If we stay in a global recession forever and Intel never exceeds 5% growth ever again, then at today's prices, you're paying fair value and getting a 4% dividend. If it does better than that, then you're going to make pretty good money. Those are the facts.

More facts
Go east to China and you'll find New Oriental Education (NYSE:EDU), a dominant education franchise in China that's the market leader there in English education and test prep. And, yes, the Chinese value education.

Similarly, Nam Tai Electronics (NYSE:NTE) is priced as though the electronics manufacturing industry in China is dead and buried.

Here's what you can do about it
Indeed, expectations for stocks around the world are low, and that's what makes now -- despite all of the ominous headlines -- the safest time to invest.

At Motley Fool Global Gains, we're recommending that investors take particular advantage of the panic to increase their exposure to previously premium-priced overseas stocks. By doing so, we expect you to improve your returns and achieve greater diversification.

After all, remember what a little Brazil would have done for you between 2002 and today.

To take a look at all of our top international stock picks for new money now, click here to join us at Global Gains free for 30 days.

This article was first published Oct. 27, 2008. It has been updated.

Tim Hanson is a Motley Fool Global Gains co-advisor. He owns shares of Nam Tai. New Oriental and Nam Tai are Motley Fool Global Gains recommendations. Intel is an Inside Value recommendation. Disney is a Stock Advisor choice. The Motley Fool owns shares of Intel and has written covered calls on those shares. The Fool's disclosure policy stands by this article.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$122.81 (-1.72%) $-2.15
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$39.26 (-2.73%) $-1.10
New Oriental Education & Technology Group Inc. Stock Quote
New Oriental Education & Technology Group Inc.
EDU
$24.53 (-0.37%) $0.09
NCR Corporation Stock Quote
NCR Corporation
NCR
$32.97 (-2.74%) $0.93
Nam Tai Property Inc. Stock Quote
Nam Tai Property Inc.
NTP
$4.21 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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