So have way through the trading day, the markets are down once again. Over the last 5 trading sessions, stocks have lost on average approximately 4%...pretty ugly stuff. Of course the question always goes back to the "why". Well, I hate to sound like a broken record (but get used to it), it's all about Europe; yep, once again we are being held at the mercy of the financial crisis that is spreading throughout that part of the world. Over the past several days the focus in Europe has been on Spain, which is seeing their banking system struggle as economic activity is at a standstill and the country is way over its head in debt. As I've written 157 times (I made that number up), the European financial crisis is going to be with us for quite some time. Here's the thing though, it's not just that these countries have too much debt and cant pay their obligations (government jobs, can't pay citizens benefits, etc), it's also that other countries that have loaned money to troubled nations (such as Spain), are not getting paid back on the money that they are owed...this in turn creates a dominoe effect because in the end no one ends up getting their money!
Why does this have such an effect on U.S. stocks, especially our financial stocks? Because investors around the world fear that this calamity in Europe will spread and get out of hand and will eventually cripple economies all around the world...this is not the case! Allow me to repeat for emphasis:
- our financial system is stable and recovery
- housing is stabilizing and it appears that 2013 will actually see an uptick in housing prices and growth (based on recent released data and forecasts)
- unemployment has come down slightly
- corporate profits have accelerated and despite slow growth, profits and revenues are nonetheless improving
- the recently high price of oil and other commodities has come down in price over the past week (the price of oil has moved down from $112/barrel to around $95/barrel)
- consumer spending has been on the rise
So all that being said, despite the fact that stocks have moved down significantly in price over the past week, I still think that if an investor has a 6-12 month investment outlook (meaning that they don't mind the ups and downs, which lets be honest is always the case when you own stocks), now is a great opportunity to be buying solid U.S. stocks. Here's the thing, I'm not a fool to think or believe that stocks are going to eventually just move straight up in price b/c in fact they never do! I am of the opinion however that we will see a continued reallocation out of bonds/cash and into stocks over the course of the year and consequently I think that anyone who continues to add to their stocks positions or buy mutual funds will be handsomely rewarded with profits over the next 6-12 months. (I would however like to add that I do not advocate anyone going in and just using all of their available cash to buy stocks/funds, however I always buy a little here and buy a little their and slowly dip my "toes into the water").
Considering what I just wrote, I've been monitoring my stock "watch list" and looking to add to or buy new stock in the companies that I listed a week back on my blog. When we see the markets sell off as much as they have recently, I take advantage of the negative prices to invest in stocks that I believe to be "on sale" (remember the key is to buy stocks priced low and sell stocks priced high - sounds easy but it's emotional to buy when things are down and sell when things are up). So, simply put, I am
A: buying more stock of companies that I already own (Etrade/Citigroup/Verizon/Yahoo/CIM)
B: adding to my mutual fund holdings and buying mutual funds for clients that don't own any yet (great time to be moving money in the markets, especially if you've been fortunate enough to have been sitting on the sidelines while the markets have moved down of late)
C: buying stock in companies that I don't already own that have been on my stock watch list (KKR Financial/Sallie Mae/Bank of America/Pfizer/CSX/Dell/Ebay/Research in Motion/Och-Ziff Financial)
So I guess a good way to end this post is to say that yeah we're down b/c of Europe, on majority things look good and continue to improve for U.S. companies and the economy in general, and I am and will continue to buy U.S. stocks and mutual funds as I believe the risk/reward for investing money in the markets now is extremely attractive. As history has proven, the way to profit in the markets is to buy when stocks sell off and move down in price...and thanks to Europe, we are getting a great opportunity to buy stocks on the cheap!
I'll update my blog to let my clients and anyone else know what stocks and mutual funds I'm buying and will be buying in the days to come (courtesy of Europe). Btw did I mention recent economic news out of China looks promising?? A great way to invest in the stabilizing economy in China/Asia is to invest in a mutual fund such as the Mathews Asian Growth and Income fund (MACSX) - it sports one of the best fund returns and is inexpensive with respect to other Asian focused funds.
