Time To Buy?

Individual investors will be getting their statements from October.  The news is not good.

Most people react in the wrong way, looking backward rather than forward.  This is the main reason that the individual investor, attempting to time the market, gets about half of the average rate of stock market gains.

Three Factoids

Sometimes the picture can be captured in a snapshot.  Here are three facts to consider:

• Investors are bailing out of mutual funds.  The latest report is a massive sell of $21.9 billion.
• Warren Buffett is buying — not just for Berkshire Hathaway, but for his own account.  Doug Kass highlighted the Buffett performance on market calls.  (Full disclosure:  We are fans of Doug Kass, writing for a paid site at TheStreet.com. We write there also.  We were paid subscribers, profiting from the advice, before we joined the team.)  We are quoting at length with the suggestion that readers might wish to get this information in a timely fashion.  Here is part of  Doug’s comment from October 20th:

Based on my analysis of his public quotes and opinion, the Oracle of Omaha has made only three boldly positive market calls in his career; the latest one was on Friday. The first two calls were prescient.

• • Bullish call No. 1, 1974: Over the two-year period following Warren Buffett’s 1974 call (see above quote), the Dow Jones Industrial Average and the S&P 500 soared by 86% and 70%, respectively, over the next two years.
  • Bullish call No. 2, August 1979: In an interview in Forbes, Buffett stated,
    

    Stocks now sell at levels that should produce long-term returns far superior to bonds. Yet pension managers, usually encouraged by corporate sponsors they must necessarily please, are pouring funds in record proportions into bonds. Meanwhile, orders for stocks are being placed with an eyedropper…. Can better results be obtained over, say, 20 years from a group of 9.5% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, at around book value and likely to earn, in aggregate, around 13% on that book value?… How can bonds at only 9.5% be a better buy?

    Over the next two decades, the S&P achieved an annualized return of 17.3%, nearly twice the average 9.6% return for bonds.

• The Gong has Rung.  Our Gong model now indicates an attractive risk/reward environment for equity investors.  The Gong has patiently waited out the massive October volatility, so it deserves some respect.

Conclusion

There are many conflicting straws in the wind for investors.  Much of the media coverage emphasizes what has gone wrong, bailouts, and the potential for a massive depression.

Investors must ask whether equity prices already reflect a severe recession. For our investors we are finding plenty of stocks available at fire sale prices.

And of course, this approach may not be an “instant winner.”  There is plenty of skepticism in the market and each investor’s situation is unique.

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