So far this year many people have lost a lot of money in the stock market. I feel bad for the workers who are near retirement who have lost 40% or more of the value in their 401k. This might force them to work for a few extra years. I checked my 401k last week and I have lost over 50% to date this year. Now this isn’t too bad because I just begun my enrollment this February when I started my job. I have accrued very little money in it to date and I only contributed up to the amount where I get the maximum employer matching. For example as of yesterday I have lost $1,654 as of this year, but my employer has paid $1,536 so far this year into my account. So effectively I have lost only $118.
If you have been wise enough to stay out of the stock market this year I believe your opportunity to enter the market is here. Especially if you are young you have the rare opportunity to buy stocks at valuations seen once in a lifetime. There are so many great companies out there that are still increasing their profits and have good cash reserves. Due to the recent financial turmoil their P/E ratios have dipped to incredible levels and their dividends have increased generously. These are the types of stocks you need to look for. Make sure they have a solid history of increasing dividends. You need to understand how their business works and have faith that their business will grow in the future. They need to be able to weather tough economic times. I recommend a staggered approach to buying stocks for at least the next few months. There are still risks in the market that might cause it to fall another ten percent, circumstances that are impossible to predict until certain factors play out. In other words, don’t put all of your eggs in one basket; try to buy a significant amount of shares every week or two for the next two months.
Below is 5yr timeline of the S&P 500:
During the housing bubble banks and investors leveraged themselves to unprecedented levels, and hedged themselves with credit default swaps. Then mortgages started to sour, poisoning the balance sheets of banks with toxic assists, and bankrupting many institutions who made too many credit swaps. With banks in trouble, lending dried up for businesses and individuals. To settle debts many institutions had to sell shares in other companies, further depressing prices. A downward spiral commenced, cutting 30% off the market since September. On top of this business are not only being affected by a dried up credit market and lower stock prices, but from lower demand as well. Individuals are feeling the heat as their credit dries up and house prices decrease. Their purchasing power is falling dramatically and spending is decreasing. Third quarter reports have reflected this and fourth quarter reports probably will too.
One company that exemplifies being a victim of attack from two angles is General Motors. Their demise started early due to the decreased demand of its vehicles when oil was at rocket high prices this summer. Their financial situation was bad to begin with. Restructuring an auto company takes an enormous amount of time and money, and with the credit markets dried up they don’t have a chance unless they are bailed out by the goverment. Letting a company like GM go down can bring the market down 10%. This is one of the examples of me saying there are still a few risks still in the market. Or maybe a big hedge fund might go down. There is no way of knowing since hedge funds aren’t regulated and are more discreet about their balance sheets than corporations. The meltdown of the humongous corporation AIG was unexpected, so you definitely won’t see any hedge funds fail until it’s too late. Hedge funds made up 37% of credit swaps made; whereas Insurance companies made up 17% and banks 44%. The rest came from other miscellaneous sources. The credit market will continue to falter as long as the housing market does. The downturn started with the housing market and it will end with it.
Stocks I have recently bought:
GM (miscalculated trying to make a short-term move)
Stocks I am looking into:
Weatherford International Ltd.
Take-Two Interactive Software
Please don’t take the companies I am listing as recommendations! Certain ones such as SunPower I won’t consider buying until at least mid Dec. CBS on the other hand I won’t consider buying after Dec 4 because that is the last day allowed to own the stock in order to get the dividend payout. Sirius is a big gamble that I might not be willing to take, yet has potential for huge rewards. In regards to Home Depot I have to look at its latest earning report that comes out later next week. Etc…