Time to Buy?
This post is just a quick note to comment on some recent trends in the markets. I think at this point, few of us are still trying to call a bottom. If that's really become the case, then we're a step closer in what Barron's Mike Santoli calls the market's "capitulation". That is, investors giving up, getting scared, and moving money to the sidelines.
I guess that's necessary and part of the cycle. However, it's created loads of very low-risk deals. You can find any number of stocks with dividend yields now well above those of corporate bonds. That means that you're getting an almost guaranteed rate of return on equity that's higher than the almost guaranteed rate of return on bonds, which are a safer investment due to their placement in the capital structure. This return is not without its risks, of course, as the dividend relies on good earnings and the board of directors not deciding to cut it. However, I think there are plenty of stocks for which it is the case.
Most importantly, to most people who would argue with me, the question is not of calling a bottom, but rather, as Warren Buffet pointed out in his recent op-ed in the NY Times, of deciding at what price you're willing to own the stocks. Some good deals may go away, others will not. I'm in it for the long haul, so I'm happy to jump on a good deal when I see it. If it drops 10% in the near term, so what? Maybe I'll buy some more to average down on my cost basis. However, I'm confident, along with Buffet, that in 10 years time these stocks will be worth more than their weight in gold, and I'll have been paid handsomely to hold them the whole time.