My wife is an extraordinary shopper. She can hunt bargains with the best of them, whether at a grocery or clothing store. If there is a discount to be found, she’ll find it. She is also patient and willing to buy straw hats in the winter.
An ideal time to buy stocks is when they are on sale, trading at a discount, or offered at a lower price, because who doesn’t love a bargain? Apparently, many people don’t because the market is down considerably this year, and there are few signs of buyers. In reality, when stocks fall, most investors sell, and they do not buy. Wall Street is the only place no one shows up when there is a sale.
To buy stocks as they fall requires patience and courage. It’s not easy to buy while others are selling. It’s a contrarian strategy. Also, if you buy stocks when they’re down, they might not recover for several years. If you purchased Microsoft after the Tech Wreck in 2000, it took more than sixteen years for the price to recover, but if you bought it and held on, you’re up more than 300% on your investment!
To acquire great companies in a bear market requires foresight, homework, and a shopping list. Identify a few names you want to own so that you can pounce when they fall into your buy zone.
I recently used Value Line’s search engine to screen for stocks with pristine balance sheets, and I found more than fifty companies. Some names include Pepsi, FedEx, McDonald’s, Walmart, Pfizer, Tractor Supply, and Fastenal. These companies are down this year but still up over the past three, five, and ten years. In addition to buying great companies at lower prices, you may generate above-average income. The average dividend yield is 2.43% if you buy these stocks today. Last year, they rose an average of 29% – same companies, different year. Besides the market falling, not much has changed for these stocks.
Like the tide, stocks rise and fall regularly, so don’t be shocked when they’re down. In fact, stocks drop about once every four years. The Dow Jones fell 10% or more often over the past decade, including a 37% correction in March 2020. If you had the wisdom and fortitude to buy stocks during the initial phases of COVID when stocks traded near their lows, you’d be up 56% today, but if you waited until they rebounded, you only gained 1.3%. Walter Deemer, a retired institutional market analyst, said, “When the time comes to buy, you won’t want to.”
Of course, stocks could fall further as several experts predict, but if your time horizon is three to five years or more, it’s a good time to buy.
A few names on my shopping list include Garmin, Tractor Supply, and Starbucks. What’s on your list?
Always buy your straw hats in the winter. ~ Benjamin Graham
June 17, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
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