May 7, 2010

Problem Markets = Good Time to Invest

POLITICS - Remember the old adage, buy low and sell high?

Well yesterday the stock markets went on real rollercoaster when someone accidentally pressed the B for billion button instead of the M for million and thus selling 15 billion shares of Proctor & Gamble... the huge sell off sparked a downward plunge that caused the stock's value to drop 33%.

And then jittery investors when crazy selling off stocks they thought was going to be effected... the result of which sent numerous stocks tumbling so fast that they were temporarily rendered valueless or even a mere 1 penny per share.

ie. The iShares Russell 1000 Value Index Fund (worth $9.5 billion USD) went from $59 to 8 cents a share.

Accenture (worth $42.50 per share two days ago) was briefly trading for 1 penny a share. Anyone who managed to invest $1000 during a brief 5 minute period would be sitting on a $41,000 nest egg today as the price is now floating around $41 / share.

The thing is that the only reason investors are so jittery and panicking lately is because of the overblown debt crisis in Greece. Greece's stock market is way down, unemployment is up, debt is growing and the Greece government is having to cut back on public services or face bankruptcy.

The silly thing is that NOW is a good time to invest in Greece's stock market. Troubled markets like that should not be avoided, they are opportunities waiting to be plundered. The Athen's stock exchange right now may be low for the moment, but imagine if you will investing $1000 in a company that is guaranteed to stick around and grow in the future (ie. it sells a product that everyone needs and that product is of high value).

Or if you have a fair amount of cash and want to diversify you could sink $1000 into 20 different stocks, each of which has a quality product with a guaranteed future.

Lets give another example but this time use currency. The Iraqi dinar would have been a really wise investment in 2002. Various other war torn countries in the world are prime for investment, but only when it looks like there will be a regime change in the near future. For example if the country of Landvia was about to be invaded by the USA and have a regime change, that would be good time to buy a $100 USD worth of Landvia's currency the Landvian farthing when its at a really low value. Five years after the regime change and you've doubled or tripled your money.

The problem with doing this is that many people in the stock market don't want to wait that long. They're short selling far too often. They buy something at $5 a share, wait a hour and then try to sell it at $5.01. Its rather ridiculous. Sometimes they end up losing to many cents instead.

After all for every investor who gains something, there's another who loses. Somebody has to walk home empty handed.

The difference however is when nobody is buying and the stock values start to sink. The best time to buy is when it bottoms out and starts to build up again. Then its just a matter of patience, a quality sorely lacking in many "fast-and-loose" stock market players who ultimately exhibit many of the same faults as gamblers in a casino or a racetrack. For them the stock market is an addiction and they're chasing after success and a life of luxury that few will ever achieve.

I'd also argue that too many people out there are investing in companies that just sort of move money around. Banks, investment firms, pension funds, etc. They don't actually sell a product and are essentially just ripping off the people they service and in many cases their stocks have become inflated in a bubble. I'd argue its a safer and more logical investment to put your money in manufacturing, farming, mining, etc. Companies that actually make and sell products that people need.

Politicians come and go, but the stock market eventually goes back up. Thus the best time to invest is when the stock market has hit rock bottom.

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