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Is It Time to Invest in The Stock Market Yet? By Trident Confidential Editor, Lance Spicer People ask me, “Lance, you are a big advocate of buying stocks now, even though it seems things are just getting worse, why?”
A good question, that’s been asked in different ways, especially during 2008 and 2009, but the question remains the same, “Why am I talking people into investing now while there is a global economic crisis?”
Here are my reasons.
All recessions end, and this one will as well, but about 6 to 9 months before they do, the stock market moves up in anticipation, as we have just started to see already. It happens every time.
The issue is when this recession will end, not if. The optimists, think late 2009, the pessimists think it may extend into 2010, making this the longest recession since the Great Depression. The reality lies somewhere in between. Let’s expect an end in the first quarter 2010, which is on the “gloomy side”.
If that were the case, then stocks, based on history, could start moving up any time now, but by September 2009, I would expect a New Bull Market will have already emerged.
So, this means you realistically will be able to buy stocks at around these prices for at least the next few months, maybe even a little longer. However, while the best profits are always made early in the start of a new bull market, remember that traditionally, bull markets last for years.
Stimulus Packages Now Starting to Work
The various stimulus packages will begin to take effect in coming months and may increase the earnings outlook of various companies involved in the construction and infrastructure industries (which we are targeting among others in my newsletter, The Trident Confidential).
Based on history, and the Chinese experience, it takes 3 to 6 months before you start seeing some economic movement (a little sooner, if it includes cash bonuses or tax cuts, as it does in Australia and the US). We should see some “stimulus traction” in say, 3 to 6 months, which means we should be seeing some effect very soon and in fact based on the good economic news emerging from China and the US, it seems it’s already started.
Some Problems Still Remain…. But will fade by 2010
While we are still hearing about unemployment getting worse, and that the financial system is blocked up with bad loans and banks in the US still need more money, the market will sit exactly where it is, right?
That’s true, however a survey recently released from workforce consulting firm, Watson Wyatt Worldwide in the US, concluded that more companies are resorting to pay and hiring freezes, rather than payroll reductions, to weather the recession. More than half, or 52% of the 245 companies surveyed, said they've already made job cuts. Job cuts were still being planned by 13% of respondents, but that’s down from 23% in December 2008. Other evidence exists that the decline has leveled off in the US, such as improving Job Reports from the US Government. Unemployment still has a way to go in the US and things in Australia will get worse, but we should always remember that unemployment is a “lagging” indicator and always gets worse well after the economy moves back into GDP growth and the stock market has commenced a new bull market.
As far as the US banking woes go, the Obama administration has implemented several programs to assist the banks and they seemed to have worked well, with nearly all banks in the US returning to profits.
On the earnings front, the most recent earnings reports from the US have been quite a shock for analysts with the majority of companies meeting or exceeding expectations. Corporate America is definitely on the improve. This is yet another “green” light for the stock markets, not only in the US, but in Australia as well.
The market does not like uncertainty and the economic news, the banks announcing profits and the latest earnings reports have given them that certainty. Things are improving.
More good news has emerged on the issue that started the whole Global Financial Crisis – US Housing Foreclosures. US housing sales have jumped in recent months and the decline in construction has also leveled off. Again, more good news and further indication of a slow turn around in the US economy, which as we know, affects Australia’s economic outlook.
So, to sum all this up, we have already seen a reasonable short term recovery in the stock market on the back of encouraging economic news and we could see the start of a new bull market in coming months. This is an opportunity that shouldn’t be missed!
Yes, it’s also a time when you take the biggest risks, but reward, never comes without some risk.
Consider this. Many stocks are down by around 55% from their highs in October 2007. In those days, many stocks had PE ratios of 15 to 20+, now they are much lower, around 6 to 10 and that’s after factoring in any recent drops in earnings, which as you know, generally recover after a recession (for good companies anyway).
Do you think these good companies (forget the bad ones, we don’t want to invest in those) will ever get back to their former valuations of a PE of 15 to 20 with growing earnings and a new all time high for their share price (I’m only talking about the good companies here)?
Of course you do, but it’s the time frame that’s the problem, right?
Well, let’s have a reality check and you’ll see why I’m always “going on” about buying stocks.
Just say a company’s share price has fallen 55%, it will take a rise of 122% to get it back to it’s high, correct?
If you bought it now, and it reached a new all time high in a year you’d make 122% on your money. An amazing return.
But what if it took 2 years? You’d make 61%pa on your original purchase price.
What if it took until 2012, 3 years from now? You’d pick up 41% each year. Which is an amazingly good return in anyone’s language.
Even if you asked the question, “But what if it took until 2019, ten years away, to get back to a new high?” I would respond by saying, “It doesn’t happen if you pick the right stock, but then you would have earned over 12%pa on your original investment anyway”. Since the lows in march I have one stock go up over 200% in a matter of weeks, several others up by over 100% in the same time frame – Huge profits can be, and will be made over the course of 2009.
See my point? The rewards are there waiting. This opportunity may not happen again in your life. The trouble is people can’t see past the current situation. They become “myopic”, they only see what’s right in front of them, not a little farther out. They are overcome with fear, and that’s what stops them doing anything in times like this, and it’s also the reason they will never do really well out of investing in stocks.
Billionaires like Buffet and Soros are aggressively buying right now, will it be another case of looking back in years to come and wondering, “What if?”
As for Trident Confidential, at the time of writing (May 2009) the Portfolio we run has shown our subscribers an over 50% return in 2009 alone. This is on top of returns average almost 100%pa since 2004. Yes, even the worst year since the Great Depression, I made 23% for subscribers. Most people would be happy with that in the middle of a Bull Market, let alone a year when stocks fell 50%. It comes down to doing your research properly and buying the best stocks and having the right investment strategies for the right situations. At Trident Confidential, we have proved our system of picking the right stocks and employing the best strategies, in the worst markets.
So, What am I Buying Right Now?
Right now, there are a group of companies on the Australian stock market that have been completely forgotten in the last few months of rising share prices (albeit, "mild" rises in Australia).
They are the "small cap" companies. This group of companies has been sold down tremendously over the last year or so. In some cases earnings have increased yet their share prices are down 50%, 60%, even 70%. Some of these companies are real bargains right now. At Trident Confidential, I have been buying some of these stocks and have been adding them nearly weekly to my buy list and research list with some pretty spectacular results. However, it's not over yet, it's only the beginning for some of these stocks on PE's of 2 or 3 and Price to Book Value ratios under 1. To give you some idea of how good an investment in "small cap" stocks can be at around this time in the economic cycle - my Trident Confidential play on US small caps yielded a return of 12% in just one day, and is up 33% in 3 weeks. There is much more to come in the next couple of months too. So, look into Australian small caps before they take off in coming months. If you don’t want to, subscribe to my Trident Confidential and I will do it for you – and tell you exactly what I am buying at what price. If you think you do not understand all this and it is too hard to invest in shares, let me assure you, it really isn’t. Our User’s Guide explains everything and our great, full service broker can help you set up an account – cheaply and advise you along the way. It is a set and forget system now – that works! To sign up - Complete the coupon or sign up online using the link below. Another stock I like right now, is actually a big cap Australian company, who the market has ignored - Big Mistake! The US consumer confidence report was music to my ears (and their's too)! If you have already guessed their name, then load up! That's what I'm doing at Trident Confidential and it's one of my favourite Aussie stocks right now and has Price Appreciation Potential of 100% and a good dividend too. So, my message to you today is, if you are on the sidelines, I wouldn't stay there too much longer - the opportunity now is not to be ignored. Sure, there will be bumps along the way, but prices like these won't be back for some time. Also, do some research into Australian Small Cap stocks. If you don't do something, you'll kick yourself in a year or two. Consider this - The Trident Confidential Portfolio is up approximately 50% for 2009 so far, which includes more than 50% Australian stocks. Some of these Australian stocks have already gone up over 100% this year - others will, as the year continues. The stock market indices are up slightly for the year and many “experts” will tell you it’s impossible to out perform the broader market over time. Well, we disagree strongly and a 5 year record of annihilating the market in performance. It’s simply a matter of picking the right stocks for the prevailing economic conditions. Remember, quality "small caps" that you can buy cheaper than book value is what you are looking for. Yes, I'm investing right now, and if I hadn't invested when others said not to, I would not have made 23% in 2008 and I wouldn't be up over 50% so far in 2009. Just a few weeks ago, an Australian Trident Confidential stock that I know is widely held by many members, is up over 40%, in one day. It's up a total of 200% in less than 8 weeks.... that's why I advocate stocks all the time - I make money out of them, yes, even in the "worst market since the depression" and I am coming up with these options each and every week. Why not join me?
Until next time. |
