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Fortunes Aren't Made in Bull Markets

By Chuck Saletta - Updated Nov 14, 2016 at 10:40PM

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That's just when they get revealed.

If you're a long-term investor, you should be hoping for a market slump.

What?
Maybe that's taking it too far, but stay with me. See, unless you're already rich -- and therefore don't need to invest another dime in the market for the rest of your life -- you're probably adding new money to your investments. (And good for you.)

As long as you continue to invest new money in stocks, you want to get hold of them at the lowest price possible. Is that possible in a permanent bull market?

Happy when it rains
Here's what Warren Buffett had to say on the matter: "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

Sinking prices. That's right: A bear market just might be the best thing to happen to you as a long-term investor. It gives you the chance to buy more shares at a lesser cost.

You'd rather buy (and keep buying) shares in a good company that keeps getting cheaper than to keep buying shares in a company that keeps going up, right?

Right -- if you want to buy low
For instance, imagine two investors, each buying $100 worth of the same stocks on the last trading day of each month for one full year. The only difference between the two is that one investor bought during the raging bull market in 1999 and the other bought during the bear market doldrums of 2001. This chart shows how much either collection of shares would be worth today:

Company

10/24/07 Value of
Shares Purchased
in 1999

10/24/07 Value of
Shares Purchased in 2001

Difference
in Value

Cisco Systems (NASDAQ:CSCO)

$1,172.38

$2,052.35

75%

Apple (NASDAQ:AAPL)

$16,983.70

$22,307.37

31%

Macy's (NYSE:M)

$1,652.11

$1,940.11

17%

Motorola (NYSE:MOT)

$754.93

$1,364.93

81%

Kellogg (NYSE:K)

$1,836.82

$2,291.32

25%

Mattel (NYSE:MAT)

$1,275.93

$1,450.82

14%

DuPont (NYSE:DD)

$922.33

$1,332.28

44%

The investor who bought during the bear market ended up on top -- in some cases, substantially so. It may seem obvious, but never forget that the lower the price you pay for the companies you buy, the more your investments end up being worth.

In other words, fortunes aren't made in bull markets. In addition to the above examples, consider Buffett's investment in Coca-Cola. Or the story behind his stake in American Express.

Set your mind right
Certainly, it's nice to own a stock that skyrockets. What's even nicer is if you own a whole bunch of the stock you bought on the cheap. That's the way fortunes are made: by buying stocks when they're cheap. In fact, the cheaper they get, the more attractive they become to buy more.

That's how we advise investors at Motley Fool Inside Value. If you need a few ideas right now, you can check out our favorite stocks for new money at Inside Value. Just click here to join our service free for 30 days. There is no obligation to subscribe.

At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of Mattel. Coca-Cola is a Motley Fool Inside Value recommendation. The Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$172.42 (-0.99%) $-1.73
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$48.91 (-0.92%) $0.46
Kellogg Company Stock Quote
Kellogg Company
K
$76.44 (0.70%) $0.53
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
DD
Mattel, Inc. Stock Quote
Mattel, Inc.
MAT
$24.02 (-0.33%) $0.08
Motorola Solutions, Inc. Stock Quote
Motorola Solutions, Inc.
MSI
$253.85 (-0.93%) $-2.39

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

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