Buy Low, Sell High: What to Buy?
Apr 24th, 2009 by Nut
The above chart tracks the performance of a few things: my waning interest in watching Lost, everyone’s stock portfolio, and finally—the performance of the S&P 500 over the past five years.
Now that the panic/fear/delirium has kind of passed and all the talking heads are starting to mention “a bottom” rather than panicking and looking for stories where there are none, we can all pretty much agree on one thing: this is a great time to buy more stocks. Whether it’s for your Roth IRA, for your 401(k) (you can increase your contributions now), or your brokerage account.
But which stocks should you buy?
Clearly, you don’t need me for that—there are people out there that will run stock screeners showing you exactly what you should buy. They’ll look at P/E ratios and past earnings, how great a CEO has been at turning a company around in the past, etc. If you read the Wall Street Journal or you watch MSNBC, then you’ll have no problem getting some advice on what to buy.
Me? Well, I’m just not that into numbers. I know some of them are important—I definitely don’t want to buy a company that isn’t making any money.
But I’d rather take a look at the shopping universe and use what I know to pick potential stocks. Notice I used the word “potential” because I’m not going to go out there and buy a stock because I “know” something about it. I’ve mentioned all this before in my review on Peter Lynch’s One Up on Wall Street.
I do enjoy looking at all the stocks that are out there through this “invest in what you know” lens, though. It’s much more entertaining and fun when you’re reading an annual report on a company like Perry Ellis (PERY) when it just so happens to be one of the only places that makes clothes that fit you.
Or reading earnings reports from videogame companies—that’s what my post on videogame investing was all about.
My Bank of America Story
The last individual stock I ever bought (I’m mostly invested in index funds, which are a great investment, just not as fun) was Bank of America (BAC), and that was before they crumbled. Let me explain my thinking: I’ve been a customer since I was in college and for the most part I’m happy with their service. But a bank is a bank, right?
The thing is, they bought my old bank and they’ve been buying banks left and right. I know because I get all this stuff in the mail telling me about all their acquisitions. And when I heard that they were buying Countrywide, essentially turning themselves into one of the biggest mortgage players in the country—I figured it was a no-brainer.
Plus the dividend was so juicy at the time that it pushed me over the edge. I bought Bank of America.
And then it collapsed, so I bought a little bit more.
And it fell even further.
Now, for the most part I’m not a nervous guy. I’m a long-term investor so I knew this was part of the game, but for a minute there I got very nervous. What if Bank of America fails? What if it goes to zero? I figured that as long as it didn’t fail I would be OK.
So far, so good (knock on wood). That’s the beautiful thing about being a long-term investor: you don’t have to get results right away—it makes these little bumps in the road easier to absorb.
Anyway, I’m curious to hear what other people out there are buying or looking to buy now that the market is beaten down so much from a couple years ago. Anyone else want to share?
I’ve considered Dell and GE.