Recently the stock market has been very volatile with fears of the economy and all this other stuff. Fact is long term all this means nothing, except a great time to buy. Warren Buffet said it best “Be Greedy when people are fearful and fearful when people are greedy.”
When the markets take a hit like we have seen in the past weeks it’s because people are afraid something is going to happen so they take their money out of the market, and end up causing that something to happen. Companies become artificially deflated and the opportunity to buy large portions of a company with your money now appear. So your investing dollars can go further. Fact is in 10-20 years the cost of everything will rise, was well a good company will still be around. So when the market takes a dive that is the best time to invest.
Unless a company was already over inflated say with a PE ratio > 16 then they will make their money back. Higher PE Ratios appear to have higher volatility when the market is emotional like it is now. In the great drop we saw over the past few years one of my best buys was NiSource. At the time they were trading around $13 a share which when you compared that to previous highs and their current dividend was a great deal. I was getting a stock at about half price and the dividend was 7% per year at that time. Now it trades around $20, closing in on doubling the money in a matter of a few years.
Dollar averaging is the best way to work things, consistently put money into your investments and when the market is down that’s a great time to either add a little more or at least buy a little more with your typical investment budget.
Stocks are all about timing, the market in the short term is an emotional thing and long term a weighing device showing you what is really worth something. Keep in mind because NiSource was a good buy back then does not mean it is now, you have to look for your own opportunities using today’s data.