Doug Kass and I have been debating on Twitter this morning about the merits of buying stocks now for the long term. Doug's contention is that based on fundamental analysis there are a number of exceptional bargains and now is the time to buy them. In the fullness of time, the market will appreciate their true value and there will be exceptional gains.
I don't disagree with Doug's view but I do disagree with his timing.
I believe that there is too much risk in the market to put your precious capital to work. That doesn't mean that there aren't long-term bargains at this point, I just don't see any compelling reason to believe that there won't be even better bargains soon.
Most market players are far too concerned about buying THE bottom than they are about buying a positive trend.
Risk in this market is asymmetrical. That means that when you buy a stock, there is just a 50/50 chance of being correct. In my view, the tremendous uncertainty caused by the coronavirus and the economic impact has created a much higher risk of further downside than a move straight back up.
If you bought stocks in the last couple weeks to hold for the long term, you already have to make up some substantial losses just to be back to even. That is highly unproductive and on top of it the risk of even more downside is quite high.
Most market players are far too concerned about buying THE bottom than they are about buying a positive trend. You make money by buying trends, not by trying to time the lows.
This market is currently in a downtrend and in danger of going even lower. There is the potential that this may be similar to 2000 or 2008-2009, so why embrace that risk rather than keep capital safe?
Yes, this action is creating great long-term investments and many will do well if they build positions. My point is that it is a good time to be very patient and to appreciate that the risk of even lower prices is substantial.
Long-term investing is a good idea but your results will be even better if you resist impatience and look for optimal entry points.