12 Jan My 13 Reasons It’s Time to Buy, Not Sell (Public Equities)
Okay, this post deviates a bit from the M&A topics, but I feel the need to urge people to hold on to these equities! So, here you go, my 13 reasons it’s time to buy, not sell, public equities:
- Buy Low, Sell High. When we boil it down, life is not that complex. Just adhere to a few simple rules and we’ll do pretty darn well. One simple rule of investing is “buy low, sell high.” So why are you considering selling now when equities values are low? You should be buying.
- If You Don’t Need the Money Now, Chill Out! Get over your myopic focus on today. Today will be over in a blink. Next year will be here and gone before you know it. If you don’t need today the money that you have in equities, why are you so concerned about their value today? You should be more concerned with future values. The value at the time you need the money. And, given that equities are at record lows, maybe it would make sense to have a little patience?
- Equities Are a Hedge Against Inflation. We’re all concerned about the federal deficit. Economists will tell you that if it becomes a big problem, one of the few solutions will be for the government to allow inflation to rise and “work its magic.” That is, let inflation erode the real cost of the debt. True, this would create a lot of financial pain, but, if it occurs, the place you’ll want your money is equities. Equities are a hedge against inflation.
- In a Volatile World, the U.S. Will Thrive. The United States is so very well established in its rule of law, systems of justice and national security. Sure, we’re not impervious, but we’re an incredibly safe place relative to the rest of the world. So when things get rough, the world sends its money to the United States, and when they do, the U.S. economy is buoyed and the value of U.S. assets, such as public equities, rise.
- Don’t Be Chicken Little. My goodness, is the sky falling? Nobody respects Chicken Little. Sure, a storm may be at hand, but the world is not coming to an end. Just hunker down and wait it out. Better times will return sooner than you ever thought.
- Statistics Indicate That Stocks Are Undervalued. Based on corporate earnings, stocks are the least expensive they have been in 21 years, and within 10% of the lowest readings in the past 52 years. Looking simply at the percentage decline, at the November closing lows, the S&P 500 was down 52%, very close to the declines in these indexes during most of the really severe bear markets in modern history.
- Don’t Base Your Decisions on Highly Unlikely Worst-Case Scenarios. I keep hearing people justify their exit from equities by saying, “This could be like the Great Depression” and “What if it the market falls to …” Look, the odds of these worst-case scenarios coming home to roost are very low and it doesn’t make sense to base your decisions on them. You don’t have all your money in the market anyway, and nobody is suggesting that you should. You have a home, a business, a car, some cash in the bank, and probably some other less risky investments such as bonds. Such are your worst-case-scenario hedges. Besides, if a worst-case scenario comes to pass, you’re going to be suffering no matter what your current investment decisions.
- Follow the Leader. Nobody disputes that the world’s financial leader, the guru, is the “Oracle from Omaha,” Warren Buffett. What’s he doing? Buying stocks. Equities. And he’ll most likely make another fortune in the next 10 years by doing so. So be like him. Follow the leader.
- You’re Buying Companies, not Tulip Bulbs. When you buy a stock in a company, you should think of it as buying actual ownership in a company. If you buy a mutual fund, you’re buying an interest in a lot of companies. These companies are not going to just go away. If you buy Apple, or IBM or Wal-Mart today, at a deep discount from a year ago, how risky do you really think it is? Let me tell you— not very. These companies are not going away. You’re getting ownership in some world-class companies that will be world-class 10 and 20 years from now as well.
- We Have Learned from the Past. The Great Depression was caused by flawed government policies. Taxes were raised to balance the U.S. deficit although we were in a recession. Government spending was cut although we were in a recession. World trade plummeted due to protectionism. Huge financial institutions were allowed to collapse, causing fear and chaos. But, hey, the U.S. and world governments learned from the past. They are not making these mistakes again. The world is not going to decline into another Great Depression.
- View Stocks Today as Being on Sale. You own stocks along with a whole lot of other people. Each day, some decide to sell — and they decide what price to sell at. Today, people own stocks that were recently selling for $100, but now they are offering them for $60. Well, better them than you, right? Maybe it’s time to buy because these silly people offered theirs for sale at deep discount. Common sense would certainly say it’s not a good time for you to be selling. You’re better off buying.
- View It as an Offer to Buy or Sell. Warren Buffet says we should view the stock market as simply a mechanism that provides us each day with the price at which we can trade that day. We, as investors, get to decide when to accept the invitation. Logic would hold, then, that we should wait to buy until the price is very attractive for buying, and wait to sell until the price is very attractive for selling. It’s pretty simple. Be patient. The price you want will be around soon.
- Look at the Great Depression! If you had owned stocks — public equities — at the beginning of 1929, right before the Great Depression, and did not sell, the value of your portfolio would have dipped to just below 50% of its value over the ensuing five years. Not far from what’s happened this year. But by 1937, equities were at 80% of the pre-crash prices and were “in the black” by 1947. To be sure, you would not have gained much wealth during that period, BUT YOU WOULD NOT HAVE GONE BROKE. Said another way, even if the current financial tumult were to mirror the Great Depression, stocks would be a LOT higher in five and ten years than they are today.
So what do YOU think?