Why You Shouldn’t Be Afraid to Buy Stocks Now, Part I
The headlines these days are filled with gloom…
The economy is sputtering. Consumer confidence is down. Unemployment is up. The Eurozone is coming apart at the seams. To top it off, federal, state and local government spending are sending us down the road to ruin. Who can buy stocks in this type of environment?
You can. And you’d be unwise to let anyone counsel you otherwise, even if stocks go lower before they go higher.
Owning great companies is a smart move. (Notice I said great companies not small, unproven, or unprofitable companies.)
Most wealthy Americans achieved their affluence not by inheritance or real estate speculation but by starting and owning profitable businesses. And these folks can be thankful they weren’t deterred at the outset by naysayers and know-it-alls who tried to convince them the economy wasn’t right or their timing was wrong or whatever.
Of course, most of us don’t have the time, the investment capital, or the experience necessary to found and run a successful business. But we can buy shares of the greatest businesses in the world through the stock market.
And it’s easy. A click of the mouse – and a seven-dollar commission – and you’re in.
Another click – and another seven bucks – and you’re out. (Compare that to your typical real estate closing.) And if you buy publicly traded companies, as opposed to running your own private one, you don’t have to apply for loans, hire employees, grapple with an avalanche of federal regulations, pay expensive accountants and attorneys, or even show up for work. What’s not to like?
Of course, businesses can experience tough times. But they are adaptable. When sales take a downturn, they’ll cut expenses to the bone and lay off unnecessary personnel. They’ll refinance their debt at lower rates. They’ll tighten up the ship any and every way they can to make the business as lean as possible. And then when even slightly higher sales start to materialize, it will translate into a big jump in earnings. Those who are still trying to understand how the companies that make up the S&P 500 reported all-time record profits in each of the last 11 quarters might want to read this paragraph again.
Once you start thinking in terms of owning businesses – as opposed to predicting elections, economies, interest rates, currencies, commodities and equity markets – it’s clear how you should grow and protect your wealth. In fact, it’s more than a little ironic that the very people I hear telling investors not to buy stocks are – overwhelmingly – business owners themselves. Their business is advising other people not to buy businesses.
Seems odd, but I guess there’s good money in it.
Of course, even if you follow the basic principles of stock market investment – sticking to quality, diversifying widely and buying at reasonable prices – you can still experience losses. That’s normal. It shouldn’t come as a surprise and it shouldn’t deter you from investing in stocks.
Indeed, there are three ironclad strategies that every investor should follow to maximize his stock market profits while keeping any losses strictly limited. And those are exactly the subject of Monday’s column…
Editor’s Note: One of Alex’s favorite shortcuts to finding great businesses is finding CEOs and directors who are investing their own money back into the company in the form of stock purchases. And that’s exactly what’s been happening with today’s Investment U Plus pick.
And since we first mentioned the company back on May 14, its stock has steadily ticked higher – not to mention it sports a robust 8% yield. For more information on how you can receive this and our other daily recommendations along with your Investment U issues for pennies a day, click here.