Mikestrathdee’s Blog

When to buy stocks? -published in May 2009 Christian Week Ontario
May 11, 2009, 11:48 pm
Filed under: Investing

When is a good time to buy stocks?   Many people are understandably nervous about putting money into the stock market, given the plunge in world markets since the fall.

Others say this could be the best opportunity in a generation to buy into quality firms.

I like the principle promoted by U.S. investor education site The Motley Fool www.fool.com

Motley Fool’s web site suggests that you think about how soon you will need the money. If your timeline for a return of invested capital is five years or less, stocks can be a dangerous place to be, and “you’ll want to avoid individual stocks and stock-centric mutual funds,” Motley Fool advises.

We need to balance that sage counsel with the reality that over the longer-term, stocks provide greater returns than bonds or bank term deposits (also known as guaranteed investment certificates, or GICS).

Warren Buffett, one of the most successful investors of modern times, says the best time to buy stocks is when everyone else is afraid to. By that rule of thumb, now would seem to be a good time to invest in quality, dividend paying securities.

A more important question may be, why do you buy stocks at all? Are you doing so in hopes of getting somewhat better returns than bonds or GICs offer, over the long term? Does a long-term return of eight to 10 per cent – in line with historical averages of broad market performance – seem reasonable?

Or are you chasing the latest fad, hoping to do as well as the friend who made a quick buck doubling his investment in XYZ Corporation a few years ago?

Gary Moore, in his excellent book Faithful Finances 101 – From the Poverty of Fear and Greed to the Riches of Spiritual Investing, notes that God calls us to a different path than the extremes of fear and greed that seem to drive thinking about buying stocks.  Writing about previous difficult periods, Moore cautions against being so wrapped up in fear that you don’t take advantage of opportunities to invest. “The biblical ethic calls for us to live with hope today, as opposed to being defeated by someone’s prediction of a dismal future.”

We also need to have reasonable expectations. The Apostle Paul writes in 1 Timothy 6: “Those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition. For the love of money is a root of all kinds of evil…”

Even professional investors have made many bad calls recently. Making all own investment judgements, without serious study (such as the Canadian Securities Course) or the help of an advisor, may not be the best call. Would you rewire your own house?
Are you willing to take the time to read extensively and research companies that you are considering buying? As Gary Moore points out in his book, “spiritual investors will be enriched if we are humble enough to realize that we don’t know it all and need to know more.”