Monday, October 7, 2013

Now is a good time to wait and see...

Today we're experiencing significant market uncertainty because of the drama of the U.S. government shut down and the upcoming struggle about the U.S. debt ceiling. Also, this is the month of large market crashes (e.g. October 1987) and one of the poorest stock market months of the year based on historical data.

So chances are the market will correct or perform modestly, based on this it is a time to wait and see before actually going out there and purchase stocks aggressively. Well, that is if you' re a momentum investor wanting to benefit from a rising market. A value investor may want to wait for a clear correction so that he or she has the opportunity to buy a stock on sale. On the other hand... there are investors who compare the 5 year or 10 year government yield with the earnings yield of stocks (which is net earnings per share divided by the share price or net earnings divided by market capital); it shows that stocks are undervalued by close to 50% or so, They say that it is not too late to buy.

So much for market timing. I am on a European tour these weeks and when back, I'll write a post about my findings. For now, I suggest to only buy stocks below intrinsic value that pay a solid dividend. Dividend paying stocks do well in an falling interest environment and when the economy improves with rising interest rates these stocks provide inflation indexed income.

Dividend paying stocks were over the last number of years favored by many investors but lately, these stocks have taken a beating because of an overdone rise in interest rates (which may reverse over de coming months or so). If you cannot find such stocks then why not just wait on the sidelines until you can? Under no circumstance just blindly follow stock tips from your friends, the taxi driver, or your stock broker unless you have done some thorough research of the opportunity yourself.

Now is a good time to wait and see...

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