As Of: April 7, 2001
P-A-T-I-E-N-C-E is the word of the day. The year 2001 is going to provide investors with the best buying opportunity in the stock market this decade. But there are two caveats: 1) Investors need to exercise patience by selectively building positions in stocks they have carefully analyzed with particular attention to the company's staying power, future earnings potential, and low current valuation. Don't rush in without a plan. 2) Investors need to think past the recession and act like patient long-term holders.
There will be plenty of short-term trading opportunities for going both long and short. I am all in favor of short-term trading when good opportunities present themselves, but some serious money is going to be made when growth stocks double and triple over the next three to five years. To gain the long term benefit, you need to have some carefully placed long term positions.
The reason for patience is because we are going to go through a full recessionary cycle and it will be months before a truly positive stock market becomes visible. Once it is obvious to everyone that the market is going up, it will be late to join the party. The largest gains are going to me made by those who are in position ahead of time. Is it possible to get in too early? Absolutely. Each stock has to be looked at on its individual merits. However, stocks that have already dropped 60% to 90% and have the ability to survive and grow earnings in the future are closer to the bottom than the top. I pity the poor souls who were buying tech stocks a year ago. They may never live long enough to see those old prices again. But building positions this year in the long term survivors will pay off once earnings visibility returns and the economy gets it legs under it again.
At the bottom of a market, volatility can be your friend. Use panic days to pick up oversold bargains and then wait patiently while shares move from weak hands to strong, and a new base is built for a future rally. Know that we will probably have lower lows as we keep testing for a bottom, so keep some cash in reserve and use a dollar cost averaging approach.