Tuesday, October 07, 2008

Practicing what I preach

Well…  I’ve been saying for so many years that when the stock market tanks, it’s on sale.  When houses are foreclosed and on the market at 80% of value, they’re on sale, not depressed.  When Apple stock is a good buy at $200, then it’s a FABULOUS buy at $97.


After all, when a car dealer knocks $15,000 off the sticker price, we don’t say “gosh, that car was totally over priced” and refuse to buy.  No, no, no…  we say “what a deal!!” and rush to get a loan that we can’t afford for a car we don’t want that will plummet in value (far more than the $15k) when we drive it off the lot so that we can impress people we don’t know or like.

 

When Payless puts shoes on sale for 50% off, we break down the door to buy yet another pair of shoes that we don’t need.

When WalMart knocks another nickel off the crap they sell, we buy 2 of each so that we can have more crap.

 

We love crap.  We love crap that’s on sale even more.

 

So, why do we freak out when the market drops 7%?  10%?  15%?  Or 3%, as it’s been doing nearly daily over the last week or so?

 

95% of 5 year periods in the US Stock market are positive net returns since 1929.

100% of 10 year periods in the US Stock market are positive net returns since 1929.

The ONLY reason for corporations to exist is to return value to stockholders either through earnings growth or dividends.  They have no other reason to be, period.

 

Why, then, do we freak out when stocks go on sale, rather than buy them when they go on sale?  Wouldn’t it make more sense to bust down the door to the stock exchange when they hang out the banner that says “EVERYTHING 5% OFF!!”?

 

Well, I finally got through to myself.  I rebalanced my 401k funds do dump a couple of funds that were redundant and allocated that 30% to an S&P500 index fund.  Why?  Because over the next 30 years the S&P will return 5% to 10%, on average, and index funds have a much lower cost basis than the funds I dumped.

For the record, the other 70% is heavily weighted in Dow and S&P companies already.

 

What can I say?  The whole damn market is on sale and Apple, Schlumberger, Google, Microsoft, Exxon, Conocco, Merck, and their friends are NOT going anywhere.  Might as well strike while the iron is hot and snatch up that pair of shoes marked 10% off.

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