Dear Fellow Investor

I have been thinking for some time now about what point to get into the market again after a severe drop.

After the 2008 / 2009 market decline I was 82% in cash and up 0.5% for the year. I was very comfortable with my cash position and felt reluctant to invest again.

This is exactly the situation Jeremy Grantham described in his excellent article titled “Reinvesting when terrified” (free registration required). I have realised the described paralysis setting in with me too.

A further factor that made me hesitate to slowly invest again was the rally which I did not think would hold as the underlying economic numbers were still deteriorating.

I used the rally to exit a few lower quality companies in my portfolio and to replace them with high quality companies that are truly trading for attractive half century (a guess) historical valuations.

The more the market declined the lower was the probability of future substantial declines. This excludes the situation where the world economy falls apart completely. But then I guess holding cash is also a problem.

Accomplished fund manager Bruce Berkowitz in his article “If Not Now, When?” also made the argument for selectively buying even though he is known for “premature accumulation”.

March turning out to be another rotten Month for the markets but having taken the decision to get in again slowly I became excited.

That has however been a recurring theme with me at that time.

What this means for you:

• As markets are still declining, write out a strategy that would make you comfortable to slowly start investing again. An example would be to invest 30% at an index value of X and 50% at X -20% and 100% at X -30%. This will stop you freezing up with all the negative news and enable you to think past the current turmoil

• Write out a list of possible buy candidates and a strategy to ease into the desired position slowly

• Consider selling existing negative positions to realise the loss for tax purposes before buying more. Be clear on any tax legislation before implementing

• See if you can negotiate lower commissions at your brokerage company as you may be executing more trades with smaller amounts than usual to slowly move into positions

• Remember it is always easier to buy on the way down as there are a lot more sellers that at the actual bottom. Buying on the way down, if the company is already undervalued is thus the way to go.

Have you signed up for my free weekly newsletter "Investing that makes sense" yet?

Sign up now and receive articles like this in your inbox weekly.

And if you sign up now you will also receive a 10 page free bonus report - Enhanced Checklist for Equity Investors - with over 30 proven checklist items to improve your investment returns.

 

I respect your privacy - Privacy Policy 

P.S.   A company the market forgot about

Last month while running my stock screeners to find attractively valued companies I stumbled onto something that will interest you.

As you know I look for the absolute cheapest companies in Europe, the UK and the USA, irrespective of size and market they are trading on.

This time however I discovered “a gem lying in plain sight”.

It’s a really large company (that you can buy nearly anywhere) that has gotten really cheap. But is so large and obvious that it is completely overlooked by the market.

Something like a diamond lying on the sidewalk, you do not believe that it is a diamond and thus ignore it as you walk by.

Another reason I like the company it that it recently got rid of quite a large millstone around its neck, another factor that should help it perform better in future.

I immediately analysed the company and recommended it to my subscribers.


To find out how you can also get ideas like this monthly click here.