You know that political bumper sticker that goes, "If you're not outraged, you're not paying attention"? It might as well apply to the market these days. The last decade has pretty much been a lost one for investors, and the last few years have only put an exclamation point on that awfulness.
The benefit of that is that good -- even great -- companies are being sold down to levels far below their true worth, and investors are losing their savings. It's outrageous!
A shocking and somewhat interesting statistic
A whopping 70% of all stocks traded on the major U.S. exchanges are down over the trailing three-year period. That's more than 4,000 names in the red -- a list that includes seemingly "defensive" stocks such as ExxonMobil
So, if you've lost money of late, don't feel bad. There's been no hiding from this downturn.
But let's also be honest: It hurts.
Time to panic-sell
It's outrageous, and it hurts, but what's the individual investor to do? The market is a monolith at times, and it can be hard to sway.
Case in point: Barrett Business Services. I found this tiny West Coast professional-employer organization and staffing company during my work as the microcap analyst for our Motley Fool Hidden Gems service. At the time, it was trading for a little more than $20 per share. I liked the CEO, I liked the balance sheet, I liked the track record, and I thought it looked cheap. So I told people to buy it.
What happened next was frustrating: It dropped to $17, then to $14, and finally all the way down to $10 and change. And while it's rebounded slightly of late, it's still in bargain territory.
What's your next move?
See, the market has it in its head that the economy is worsening and the consumer is weakening. When fears are that broad, everybody gets punished.
The pain isn't reserved for companies like the now-bankrupt General Motors -- companies that are posting losses, losing customers, and suffering under crippling debt loads. Yet the market's view is not entirely irrational. Though a company like Wynn Resorts
But back to Barrett: It still has a strong balance sheet, it has increased its share repurchase program, and it's paying shareholders a nice 2.4% dividend. Could the stock drop further from here? Of course, but it will be among the first to rebound if the economy improves.
Barrett, however, continues to suffer along with a few thousand more stocks on the market. Investors, then, have two ways to express their outrage:
- Withdraw money from the market, and wait for current market conditions to subside.
- Put more money in the market, and take advantage of current prices to build a portfolio of excellent companies on the cheap.
We're all about the latter strategy at Hidden Gems, and we're excited because investing isn't about short-term returns; it's about making a fortune over the next decade or more.
Market conditions like those we have now can be painful, but they can also help you amass a fortune. So swallow hard and start buying. And if you're looking for a few great ideas, you can read all of our research and recommendations at Hidden Gems, including our top picks for new money now, by joining free for 30 days. Click here for more information.
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This article was first published Jan. 10, 2008. It has been updated.
Tim Hanson owns shares of Barrett Business Services and Wynn Resorts. Kimberly-Clark and PepsiCo are Motley Fool Income Investor recommendations. The Fool's disclosure policy is awesome.