MarkGruner

This week we’ve seen quite a tumble in the stock market. We saw a large drop in the S&P 500 NASDAQ and Dow Jones. For the week, most of those have lost somewhere around 5%. A decrease of 5% in one week is significant. I, like many, have been predicting this for some time. I believe that the stocks are overpriced and that they continue to be overpriced, so there will be more corrections to come for the next six months until we get to a bottom-out point.

The question is what is the bottom-out point. At what point will people feel that the stocks have enough values to start investing again. That’s the true key point to understand. One thing is quite certain it’s likely to be below where the stocks hit in March. If you think about that point and we look at this and we can see quite a significant drop from there. By looking at the chart below you can see that, where the S&P 500 is today and where it was in March.

Chart S&P 500

When the first initial crash came it set a very low point for the year. My prediction is it will go lower than that, over the next six to nine months. What is the correct strategy to have during this period or in this interim period?

The strategy really depends on where you’re standing. For example, if you’re fully invested, then you may want to divest. You would want to take some of your gains and sell them out. Now on the other hand, if you’re not invested at all. Then you want to hold on where you are. If you’re somewhere in the middle. Then you would take a mid style approach. I’m not suggesting that you sell your entire portfolio. But if you’re in this market at 75% and your portfolio is already invested in stocks, you might want to reduce that exposure by 20 to 30%. Then perhaps get back in when the market goes down.

That would be a good strategy for taking advantage of this situation. Those are the things that you might want to consider if you’re not in or you’re barely in, then I would advise you to stay and hold steady and wait for the market to correct itself, and then get in, but get in strong. On the other hand, if you’re fully in, then you want to divest a little so that your exposure is not as great. As well, if you’re investing in the long term. You could take a very simplistic approach and assume that it’s going to go up in the next number of years. As such, I’m just going to hold and wait till it goes down and then back up again, that’s also a very valid approach. You will save on the fees, and you won’t have to worry about missing the entry point.

Although I think you could gain a lot more buy at least taking out 20% and then getting back in at much lower prices. So the amount that you want to do this is his personal I would not advise doing it more than 50%. But look at it this way, if you sell the S&P 500 at $3,200, and then you buyback at $2,500, you’ve made a significant gain. Whereas if you just hold. You won’t have that gain built-in, even when the price comes back. The more you sell at the high price and the more you buy at the low price, the better off you are. If you don’t sell any of your stock and you’re fully invested you’re not going to be able to pick up those deals.

This is the reason you sell part of your portfolio. And you keep part in so you follow that strategy of just holding it in and waiting for it to rise. And that’s a very good strategy to use as well. But try this one out. Take 20% of your portfolio and sell it pretty soon. Wait until the prices drop, they will drop and then buy back in. When do you buy back in? That’s a very good question.

You might want to look at $2,000 to start buying back in and then slowly increase as the stocks drop more and more until it bottoms out. Potentially that could be at $1,500 or so, and then buy as much as you can, at that price, and then watch it goes back up. It might take a year or two to go back up. And that’s where patience is a necessity. As Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.” This is a very good observation and it’s very true. If you’re impatient, you’re going to want to get the gains as fast as possible and you’re going to buy it for higher prices. But if you’re patient and you wait for the right price, then you’re going to get very solid gains. You have to think about right now, the current price is not the right price. The current price is overvalued, and the stock market is kind of like a pendulum that swings up and down over the real price or the true price of the stocks. Right now it’s swinging way in the front. It’s going to swing backward and what we’re seeing now is part of that swing backward. This is going to happen until it corrects itself. What we can see is that it’s probably likely to fall back to $2,000 and below. I wouldn’t be surprised if it goes all the way to $1,500 and perhaps even lower.

Here’s the thing, if you pick it up at $1,500, or less, you’re getting a great deal because it’s going to go back up to $3,000 and above, over the next four to five years. So if you pick it up at $1,500, and it goes up to $3,000 or above dollars, you’re going to make a great profit. You’re going to double your money. In fact, in about four to five years. And it might go well above, $3,000, it could go all the way to $4,000. You could almost triple your money in about four to five years. I think it will take about one year to drop to its low point. And then it’ll take three to four years, perhaps five from that low point to go back up to where we are today, and above.

This will be a great gain for many people. Follow the strategy and you will succeed. What is the point to buy? In my opinion, is you start buying right below the march low point, and you keep buying, as it falls below that point. You accelerate your buying the closer you get to $1,500. By the time it goes below $1,500 if it does go below $1,500, you should be fully invested at a very low cost somewhere between $1,500 and $1,700. Then when it goes back up to $3,400. You’ve now doubled your money or more.

This is a good opportunity to wait, hold, and get ready to invest. So prepare your money for investing, but it’s probably six to nine months away before it’s going to be a viable investment. The other thing you could do is you could start buying in at $2,000, or you could start buying it at $2,500. Whatever you feel is the right price. The reality is you will start seeing gains, even if you start buying it at $2,500 because it’s going to go back to $3,500 and above.

If you want to play a little bit safer. Then you could start picking up deals at $2,500 or below. If you want to play a little bit more aggressive. You could wait until it’s below $2,000. If you want to play it aggressively you could wait until it’s below $1,500. Now the challenge with all of these strategies is, let’s say you’re aiming for $1,500 as the point where you’re going to start buying in. Then you’re going to start buying big, but there’s a challenge is, what if it doesn’t get to that point. What if it goes to $1,600 and then stays there for many months, and then starts to head back up. That’s also a possibility. This is the problem with a more aggressive strategy. You might miss out on the buy. But what you can do is start when it’s leveling off. That’s a time to start thinking about buying.

When it’s leveling off at prices between $1,500 and $2,000. That’s a good point to start thinking about buying in. Now’s the time to follow this strategy, and to wait and see what the market does, and then find your ideal entry point, and then get in. Unless you have a large investment already in the S&P 500, then what would be a good strategy is you think about divesting a little, and then using that those funds to invest at a lower price. I think this is a good opportunity to start investing, and it’s a wise time to read a couple of books on investing. I have, I can recommend a couple that low to start.

Remember, patience is a necessity, so if you do buy S&P at a given price, do not sell it until the price goes higher. This could take a year or two and you may be looking at some losses in the interim. Do not panic and do not act impatiently. By following this advice, you should be able to succeed in the market. As well, avoid investing in individual stocks but rather invest in markets like the S&P 500. Individual stocks are far riskier.

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