Top Reasons to Buy in a Bad Market

The stock market is in full-blown panic mode – and the closing bell on Wall Street reinforces that each day. Huge swings in the Dow Jones Industrial Average are commonplace, and every barometer of volatility out there has its needle pegged to the top of the dial.

But while most financial experts suggest investors stay on the sidelines, the editors of DailyWealth, a daily investment newsletter with subscribers in more than 100 countries, recommend now is the ideal time to get into stocks. In fact, they’ve identified three reasons why the market is poised to surge over the next 12 months:

1. Credit crisis is spurring large selloffs – This week, DailyWealth editor Steve Sjuggerud explained that a major reason for the market’s rapid drop recently has been investors’ need to raise cash by selling anything of value, including stocks, bonds, and even gold.

“With the credit crisis freezing access to capital, you have to sell anything liquid to raise cash,” said Sjuggerud. “When lots of big institutional stockholders all feel the same pressure to sell, you get the huge sell-offs we’ve seen the past couple weeks. This won’t last, and bargain hunters will have a field day very soon.”

2. Stocks are historically cheap – DailyWealth writer Dan Ferris crunched numbers on 120 years of stock market data and discovered the current bear market is among the deepest in history, resulting in historically cheap stock prices for some of the world’s best companies. Ferris also discovered that every equally-down market preceded a strong run-up over the following 12 months.

“We’ve calculated a forward price-earnings ratio less than 12 for the S&P 500 – a level it hasn’t seen in more than two decades,” wrote Ferris last week. “Blue-chip stocks are, right now, available for the cheapest prices we’re likely to see in our lifetimes. History has shown again and again that when stocks are this cheap, now is the time to lock in great deals.”

3. Market pessimism has peaked; stocks are hated – Perhaps the biggest sign that a market surge is imminent is the extreme pessimism driving the market right now. Sjuggerud pointed to a recent report from Investors Intelligence, a research firm that has tracked the trends of newsletter writers since the 1960s. It found that negativity in the most respected financial newsletters is the highest it’s been since 1988.

“Newsletter writers always look for best-case scenarios before getting scared,” said Sjuggerud. “If they’re concerned, it means the investors who look to them for guidance will pull out of the market and watch from the sidelines as the rally begins.

“Stocks couldn’t be more hated right now,” concluded Sjuggerud. “Savvy investors who ignore the pessimism and silliness will build a world-class portfolio on the cheap.”

Comments

Leave a comment