It’s Time We Had a Heart-to-Heart Talk – About Stocks

Tuesday, January 12, 2010

01-12 1038123_people_series-200A one-sided blog between two people who likely don’t know one another doesn’t match our picture of a heart-to-heart. Maybe I should call it a “heart-to-you” session. My purpose is to bypass the facts and insights I have been writing about and explain why I feel strongly that this is a great time to own stocks.

First, a bit more about me, so you can have a better understanding of where I am coming from.

I have been investing in stocks since 1964, at age 19. As a broker, then pension fund manager, consultant and, finally, mutual fund manager, I have gained a thorough understanding of what works – and what doesn’t – in investing. I have been doubly fortunate, having worked with top investment managers I selected, and having had the authority to take action at opportune times. Now, through Investment Directions, my focus is on helping investors gain from my experiences and expertise.

If I had to pick the most valuable investment trait, it would be “contrarian.” (See my previous three-part write-up.) It’s one of the most difficult approaches to put into action, but it is highly rewarding. I learned it early, and the managers I hired practiced it skillfully. The antithesis of contrarian is running with the herd. Yes, it can be exhilarating and, for a short time, rewarding to ride a popular fad. But there are two important points: (1) getting in before a trend becomes popular provides the best returns, and (2) getting out of a fad is crucial to protect those returns. Waiting for popularity before investing reduces returns and actually increases the risk of losses.

Point #1, getting in before…, is what I want to talk to you about. I believe we have an outstanding opportunity for gain with moderate risk. I have written many postings about the facts and indicators supporting that notion. Perhaps you have acted and bought – that’s great. But, if not, I understand. There are so many stories about investors not only being worried about stocks, but also fretting there will be a second, larger, drop.

Last week, a newspaper article talked about investors avoiding stocks. One man, who lost a bundle in the internet bubble aftermath, then again over the last two years, said he was now smarter: he owns no stocks. To me, he is making big mistake #3.

Factually, there is nothing to support this stock market fear. Quite the opposite: things continue to improve. What the fear provides, though, is one of those unique combinations of good opportunities at attractive prices. But it takes acting now – before worries dissipate and prices rise.

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John Tobey on Seeking Alpha

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January 2010