Investing In Stocks When Fear Is High

I don’t believe in timing the market. There is plenty of data to prove that people who try to time the market almost never beat the average. It’s a fools game of speculation, and worse, it’s speculation of the mob mentality. I can do all the fundamental valuation of a stock, but I can’t tell you what Mr. Market will do tomorrow.

The chaos happening in the market the past 6 business days is fascinating to watch. The FUD (fear, uncertainty, and doubt) is running rampant, and as a calm investor I’m sitting back ready to pounce. You see, although I don’t try to time the market in general, it’s common knowledge that the best time to buy is when fear is running high and everyone else is selling. That time is now.

VIX - Market Volatility (Fear) Index

The image above is the Market Volatility Index. Essentially, it measures investors fear. And when investors are fearful, they are selling stock and running for the hills (cash and treasuries). You’ll see that in the past 5 years, there are a few other spikes in the VIX, and it aligns perfectly with sharp drops of the S&P500. Since I’m in it for the long run, and I’m interested in dividend-yielding stocks, I’m happy to see this fear driving yields up.

I don’t know if we’re bottomed out after today’s drop. Frankly, I doubt it. P/E ratios for the S&P 500 are just now getting below 20, still significantly higher than where they should be. On the other hand, stocks are certainly more attractive now than they were 2 weeks ago, which is why I’m going to continue to consistently allocate more money out of cash and into stocks over the coming months. I invested $35K this morning (after the predictable sharp drop of the opening bell), and I’ll invest $35K-$50K more each month until I’m at my desired asset allocation.

I’m staying the course and, hopefully, taking advantage of the mad chaos we call Wall Street. What are you all doing?

style="display:inline-block;width:728px;height:90px"
data-ad-client="ca-pub-8307179165664946"
data-ad-slot="5801124137">

13 Responses to Investing In Stocks When Fear Is High

  1. Matt Wegner says:

    I don’t believe in timing the market either but I probably will invest a little extra now that things have dropped a little. I love it when stocks are on sale because I’m investing for the long term.

    • This is why a balanced portfolio is so important.  That way when things like this happen where gold is flying and stocks are diving, you can reallocate and naturally buy low and sell high.  

  2. Squirrelers says:

    I stayed all in today, though I had a strong feeling that I should do some selling right away first thing in the morning.  Sure enough, the market kept dropping. What can you say, I had a feeling but didn’t act on it!

     I usually take more of a long-term approach, and clearly followed it today for better or worse!

    • Selling early in the morning when you know stocks are poised to drop is not very effective.  You likely won’t get the first trades (those go to the big funds) so you’ll just end up selling low.  I had a market order to sell a stock first thing in the morning (not for timing purposes, but because I know longer wanted the stock in my portfolio) and it sold for 3% less than it’s Friday closing.

  3. I usually invest monthly to take advantage of dollar cost averaging, but I will put some extra in this month. The yield looks great with the discounted price.

    • Yes it does.  When you have companies like ATT yeilding 6.2% and Intel at 4%, it’s certainly tough to hold back.  But I’m just going to stay consistent with a monthly investment until I get my cash reserves down a bit more.

  4. I am extremely jealous of the capital you have ready to bring to bear on the situation.  If stocks fall another 5% or so I might even look at taking out some leverage on a few positions.  Hopefully one day there will be another “crisis” and I’ll actually have the capital to be able to exploit the situation.  I completely agree on your thoughts and conclusions.  I am interested to see which deals you choose to take.

    • There will be plenty more “crisis” to come.  See 1987, 2000, 2008.  Compared to those years, this is nothing.  

      I’m no expert, but I stay away from leveraging investments – the market’s P/E is still very high so more drops are quite possible.  In fact, I’m expecting more over the next few months – but since I don’t try to time the market, I’m not acting on that speculation.

  5. Doctor Stock says:

    Interesting post… People can always buy the VIX too… 

    I saw some turmoil coming and a couple of weeks ago, I suggested some gold and inverses (see http://www.investinthemarkets.com/newsletter/investment-strategies-for-uncertain-times/).  People who have followed these tips are doing very well in these uncertain times.

    • I’ll take roulette over buying the VIX.  Way too risky for my blood.

      As for buying inverse ETF’s, what do you suggest?  I own some gold, but I’d be interested in what other investments trend opposite to the market.  

      • Doctor Stock says:

        Very true… the VIX is extremely volatile.  The suggestions you ask for are in this link I included: http://www.investinthemarkets.com/newsletter/investment-strategies-for-uncertain-times/ 

        These ideas are practical and have made investors a lot of money over the past 2 weeks since I posted it.  I provide several other ideas in my Weekly Newsletter (since you ask) at http://www.investinthemarkets.com/sample.pdf

        I trust this helps many out there!

  6. [...] Brave New Life – Investing In Stocks When Fear Is High [...]

Leave a reply

CommentLuv badge