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Amy Rauch Neilson
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| 10/22/2008 2:09 PM |
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Consider this scenario: A prospective new member attended your investment club’s September meeting. (For the sake of this column, let’s call her Connie.) Connie was quite enthusiastic about the investment club format and seemed to be a good fit for the club. She made a favorable initial impression on the club’s members and everyone agreed that they were looking forward to learning more about her at the next meeting.
Then, just a couple of weeks after the meeting, the stock market began to move up and down like a yo-yo, dropping hundreds of points one day, only to recover and close hundreds of points higher the next. Reporters became obsessed with quoting the percentage points the market was down – then up – then down again. Politicians began throwing the “D” word around while lamenting that our country was on the brink of a total financial collapse.
Last week, in the middle of all of the financial and political chaos going on in our country, your club met again. Connie was befuddled, to put it mildly. How did the club view the stock market -- and investing -- in such a crazy, uncertain time? she asked.
What answer would you give her? How about one that is probably the last thing she’d expect -- that the stock market is “on sale” and that this is a great buying opportunity. And, when she looks at you like you’re crazy, what about following that up with: Don’t take my word for it. Just ask Warren Buffett!
Fly on the Wall
If your club’s members experience such a moment of panic at an upcoming meeting, have you thought about how you'll respond? Wouldn't it be great if you could be a fly on the wall and listen in on the investment club discussions that are taking place all across the nation right now? Since that's not an option (unless you've perfected the science of teleporting), I thought I'd bring some of those discussions to you, in the hopes that you can glean some tips and advice:
- Don’t Assume That Your Members are Panicking.
All of my new members are so excited about the investment club,” said Henri Russell, who is a founding member of the 13-year-old Common Wealth Investment Group in Dallas, Texas, as well as a brand-new Granbury, Texas-based club, Women with Cents. “We just signed up two new members and we have another in the wings who plans to join next meeting. So far, we’ve had no problem with recruiting.”
Perhaps surprisingly, even brand-new clubs see the opportunity amongst the dire reports. “They are not down about the market. Instead, they are looking at it as a buying opportunity. They are all doing a lot of research and bringing so much to the table,” Henri adds. “I am so proud of them. It really is making me work that much harder just to try keep up with them.”
- Listen to What the (Long-Term) Gurus Have to Say.
Warren Buffett hasn’t been shy about proclaiming the market’s current turbulence as short-term – as well as a fabulous opportunity to invest in fundamentally sound growth companies at a bargain price. In a recent interview on CNBC, Buffett said, “You know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary (stock market) buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well."
- Stay in the Market.
“Our club’s attitude is that this market could present us with unprecedented opportunities for buying,” says Carol Clemens, founding member of the Clever Change Investment Club of Edmond, Oklahoma. “Clever Change has only met once since the bottom really fell out, but I think it's fair to say that we pretty much decided to continue doing what we've been focusing on for the last two years -- improving our portfolio both in quality and growth potential.”
Members of the Crow River Investment Club in Minneapolis, Minn., concur. “Economic times may be tough, but stocks are all pretty much ‘on sale,’” says Club President Diane Windingland.
- Go Bargain-Hunting.
“We know there are holes in our portfolio we'd like to fill, in energy, materials, and telecom, and that we are currently top heavy in large caps, so we are trying to find good candidates for our pounce pile,” Carol says.
- Now is the Time to Research, Research, Research…
“Now, more than ever, investors need to look closely at the companies they are considering,” Henri says. “My advice is to start with the desirable companies on StockCentral and find good companies that have cash on hand and less debt, as those are the companies that will be better able to weather the market’s ups and downs over the long term. Read everything you can find on the companies. Go to the Company website. See if you can find any negatives and investigate them. If, after all of this research, the company checks out, it might be a good company to consider as an investment.”
- And Tune Out the Short-Term Market Chatter.
“Don’t speculate on companies in the news that traders are recommending as a ‘steal’ when the numbers aren’t there to show that it is a well-run company with sufficient assets and cash to weather the downturn,” Henri says. “In this type of economy, everyone has an opinion as to what you should buy…usually when it’s big time in the news, it’s too late to buy a good quality company at a good price.”
- Point to the Market’s Historical Performance.
“Staying in the market is sane -- there are too many studies showing how you miss out dramatically when you pull assets and sit on the sidelines,” Carol says.
As the saying goes, sometimes a picture is worth a thousand words. When I came onto the investing scene in 1990, the country was entering into the first Iraq War and in the middle of a recession. As a newbie, nothing made a bigger impression on me than when my editor showed me a graph of the performance of the Dow Jones Industrial Average over the past century. A graph from 1920 to present shows that, while the market has experienced a number of dips, it’s general trend has been a steady, upward line. For a look at Value Line’s Long-Term Perspective Chart of the Dow Jones Industrial Average, including past recessions and long-term average return, go to: http://www.valueline.com/pdf/valueline_2002.html
- Connect With Other Like-Minded Investors.
“I personally check in at Manifest Investing and StockCentral as much as I can,” Carol says. “I think any time our members can go to a forum and feel free to comment or ask questions and be treated respectfully, then that forum is a valuable source of information and support. I'm always encouraging our members to read as many exchanges as they can to broaden their own knowledge and participation.”
Despite all of the potential opportunity in the current market, it’s important to acknowledge that we’re in a tough time and that not every investor has the luxury of waiting it out. “Everyone is eyeing their retirement pots with disappointment,” Carol says. “That is probably the biggest pressure in our group, as the average age is about 55.”
That said, fundamental investors must stay focused on the long term. “We have had it so good in the market for so long that many investors cannot remember that what goes up will go down – and back up again,” Henri says.
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