Despondent? It's probably time to buy

Stock prices at their lowest in a generation

Jonathan Chevreau, Financial Post
Published: Thursday, February 26, 2009

With markets this week threatening to retest the lows of last fall, investors have another chance to bottom-fish for alleged bargains. Problem is, the environment is so scary most investors fear plunging right to the bottom and never again coming up for air.

Bottoms are notoriously difficult to identify and premature bottom-fishing may be hazardous to your financial health. Optimists thought the bottom was in October, then November. Here it is February and things look worse than ever.

Perhaps you feel despondent, as I do. But that can be a good thing. Consider these words from Odlum Brown research director Murray Leith: "If you are feeling depressed and hopeless, there is a good chance we are near the point of 'maximum financial opportunity' otherwise known as the bottom."

Grabbing this opportunity requires risking that things get worse still. Some might advocate borrowing to invest while interest rates are low, while super-bears might take the opposite tack and bet on markets crumbling even more.

But even the most bearish of pundits, Robert Prechter, is now advising clients to close any short positions on U. S. stocks now that the S&P 500 index has touched 12-year lows. It was trading at 758 yesterday, just above the Nov. 20 low of 748.

Prechter warns of a possible "sharp and scary" rebound at this juncture -- scary if you're a short-seller, but welcome if you're long on the market, as is most of the mutual fund industry and its retail customers.

What do financial advisors think?

Clay Gillespie, vice president of Vancouver-based Rogers Group Financial, says this is one of the worst times possible to sell and therefore one of the best times to buy. "You will just need some patience as there should still be some significant volatility around the bottom."

London, Ont.-based Jeff Wareham, of ScotiaMcLeod, thinks clients should be buying quality stocks but, "if they are finding this market too unbearable to be a buyer, I am suggesting quality corporate bonds, like the fixed floaters of the Canadian banks."

Michael Nairne, president of Toronto-based Tactica Capital Inc., says stock valuations have not been this attractive since the early 1990s.

"Investors prone to regret or worry can gradually rebuild equity positions by averaging in over a 12-or 18-month period rather than a lump sum rebalancing."

Robert Cable, head of Mississauga, Ont.-based The Cable Group, can't say if the next 1,000-point move in the indexes will be up or down, but is sure the next 10,000-move will be up. "If you want to build wealth over your lifetime, you are far better off buying than selling today. There are oodles of high-quality stocks that are two-thirds off."

As fund manager James O'Shaughnessy noted recently, "market valuations are offering investors a gift that will probably not present itself again for a generation."

He warns "it could not be a worse time to try and change horses, since I believe we are nearly across the treacherous stream."

Savvy investors are well aware of this gift.

"As a younger investor, I'm wringing my hands in delight, since the lower the market goes the better the deals are," says Preet Banerjee, senior vice-president of Toronto-based Pro-Financial Asset Management Inc. "I'm backing up the truck right now. It's buy low, sell high, lest anyone forgets."

Dan Hallett, president of Windsor, Ont.-based Dan Hallett & Associates, has "little doubt" investing today will work out well over a decade or more. But, because the pain will continue, he suggests moving back in gradually.

Maybe we'll all feel better once spring arrives.

jchevreau@nationalpost.com

--- - Jonathan Chevreau is the author of Findependence Day and blogs at www.wealthy-boomer.ca