I firmly believe if you are selling out of stocks right now you
shouldn't be an investor. It's that simple. If you can't handle
volatility, the stock market won't be gentle on your investment
There are a lot of other things to do in life, and with money, than
get stressed out about the stock market. Go for a walk with your
spouse, call a friend and get a cup of coffee, or just go work in
the yard. Buy low risk securities only, like Treasuries, and don't
worry about the ups and downs in stocks.
All of these activities can be enjoyed regardless of what the stock
market is doing.
If you can enjoy these activities despite a volatile market, then
you are in the right place. If your investment horizon is years and
not months, you justify the decision to be in control of your own
money. If you can use your head and buy stocks even when your heart
is telling you to sell, you will be successful.
The market had a very poor third quarter. There's no denying that.
In fact it was the 4th worst quarter for small caps on record with
a decrease of 22 percent. But it will get better, and you should be
buying some stocks right now if you are an investor.
I'm not saying go 'all in'. The market could fall further. But stay
the course. Buy in tranches, and above all, don't lock in losses
that you don't have to take.
If speculators, hedge funds, levered ETFs or any other short-term
catalyst is driving your stocks lower despite solid fundamentals,
reserve the right to think twice before selling. Indiscriminate
selling is the opposite of using your head, and it's hard to step
into the market when you feel like you've been played.
Remember that a long-term strategy for success means buying stocks
when they are cheap and selling when they are expensive, or when
you have gains. I urge you to stick by this strategy -
We can all think of at least two times in the last decade when
buying stocks seemed like the wrong thing to do, but turned out to
be the right call. I'm sure you remember how you felt during both
In late 2001 I called my broker at Morgan Stanley and asked him to
invest ten grand in high growth companies. I don't remember which
companies, just that this was savings that wasn't needed for at
least 5 years. My broker said it wasn't a good idea. He admired my
patriotic attitude, but said it would be best to wait - that he'd
call when it was time to start buying.
He never called, and the first best investment opportunity of my
adult life vanished.
Fast forward to late 2008 and early 2009; nobody in their right
mind was buying. Brokers were recommending clients hold - if they
had any stocks left. Yet, it turned out to be the single best
buying opportunity of the last two decades, better even than 2001.
Those that sold were crushed. Those that held are just fine right
now. Those that bought in tranches through the crash, and on
weakness during the subsequent recovery, have done very well, even
doubling and tripling their money - sometimes in very safe
They haven't had to try and pick tops and bottoms. Their methodical
approach has yielded significant returns, with low stress levels.
This is the group you want to be in.
Right now it's clearly not as bad as 2001, or 2008. Those were
extreme periods that I hope we don't see again. But it is still a
time when buying stocks feels like the wrong thing to do.
Despite this pervasive attitude, I think there is tremendous upside
potential in stocks right now.
The simple fact is that nobody knows for sure which way the market
will go at any particular time, even those who have been in the
business forever. A person who tells you otherwise is one you
should run from, and fast.
Buying stocks when everybody is selling has always proven to be
successful, if your time horizon is years and not months. Right now
the market is weak. Many stocks are down 20, 40, even 60 percent
over the last quarter. It could get worse.
But if you are an investor you need to be buying some stock right
now. It doesn't have to be a growth stock, a small cap stock, a
gold stock or a technology stock - although I think there are many
examples of each that are good buys. Depending on your risk
tolerance you may prefer to buy stable dividend growers like
. Those are wise investments.
That said, when stocks do recover it will be the smaller companies
that will offer up the biggest gains. These will be in the double
and triple digits, and it will be hard to not make money if you own
shares of solid small companies. But you can't wait until the
market gives the 'all clear' sign - because it will never come.
A long-term perspective means this volatile market is offering up
opportunities, not removing them. It's counter-intuitive, but when
good stocks fall they become less risky, not more risky.
The market could still drop further. If it does, I expect to buy
more stocks, including both small caps and large cap dividend
payers. Over the long-term, buying on extreme weakness is the only
strategy that's guaranteed to work.
And history suggests that the fourth quarter will bring nice gains
for small cap stocks. I'll go into more detail on this later in the
week - the numbers are pretty convincing. This fall I'll be in a
position to profit. I hope you will be to.
Disclosure: Author owns shares of MCD