Investing can be cruel to those who get frozen by their emotions. When the market is dropping, many people are scared to buy. It's worse when the market is climbing and people begin getting an itchy trigger finger to invest.
The longer the market climbs, the more nervous many get about missing the further upside. The itch gets worse and worse. But you don't have to buy if there's nothing to buy. One investor said it best: When there is nothing to do, then do nothing.
There is plenty that one can do from the sidelines for the next attractive buying opportunity. You can be constantly screening for stocks as there are names or ideas that still hold promise. Names that fall into this list include Gentex (GNTX), a mid-cap auto technology company, and Horsehead Holding (ZINC), a small-cap zinc producer. Both of these names have come off a down cycle but have yet to get on the upward trajectory. Gentex should benefit from an improving auto market in Europe along with some favorable legislation while Horsehead is completing a huge expansion.
While you wait on the market, you also can build a watch list. Start digging into these companies now and build a mental framework of what makes the company tick. Information is invaluable for investing. If you know a little more than your competitor, you will be in a position to act swiftly and boldly when the time is right.
I have a couple of different watch lists. The first is a no-brainer list which consists of stocks that I would buy instantly at or below a certain price. Chipotle (CMG) is one name on that list. If shares drop below $250, I know what to do. I've studied Chiptole for years, visited dozens of stores and studied the competition. Potash (POT) is another name that makes the list which I would own below $25 a share in an instant.
My bigger watch list consists of names that would be candidates if the price were right. This list grows as I do more searching. Some names become more intriguing than others while some get eliminated. Each quarter, I update the quarterly performance of these companies so I can follow progress and assess the track record of management.
It can be tough to have a company on your watch list, particularly if the share price of a company you want to buy continues to go up. You start to feel dumb for having missed. Or even worse, you start feeling overconfident in your stock picking ability. The key thing to remember is that the decision to not invest is an active investment decision. By not investing, you are simply deferring the opportunity to the future when an abundance of liquidity presents you with even better opportunities.