No - It’s Not a Buying Opportunity
There’s something I hate even more than a 5% drop in the S&P 500 in one week. It’s any mention of this being “a buying opportunity.” No - it’s not a buying opportunity, it’s a serious, sharp loss. And it hurts.
I hate all the platitudes and cliche phrases that inevitably get slung around when there’s a sharp drop in stocks.
“It’s alright. I’m a long-term investor.” Yeah, so am I and my long-term investments just lost 5%.
“It’s a buying opportunity.” So why wasn’t it a buying opportunity four months ago when the price was even cheaper? Somehow that wasn’t a good point to buy?
“The market was overvalued. A correction was needed.” Who says it was overvalued? And why does that mean a correction is somehow inevitable? My portfolio certainly didn’t feel ‘overvalued’ to me. I didn’t need a correction.
“If you dollar cost average, this is a good thing.” If your assets go down in value, it’s not a good thing.
“Now I can pick up some bargains.” And how are you buying these bargains? With money you kept out of the market, presumably. So if you’re such a long term investor who ignores market drops, why did you have money sitting around not in the market?
I’m not complaining about the market drop and I never will. That’s how the game is played. I’m comfortable with my risk exposure. But spare me the talk about what a good thing a sharp market drop is.
July 30th, 2007 at 1:17 pm
Wow! Some points you might want to consider. Like you I lost some money in last weeks hiccup. However, I am not nearly as alarmed by it as you. Frankly, if you are this alarmed then you are taking on too much risk with your asset allocation strategy.
As a long term investor look at the good side of things. You still hold the same number of shares you held before. They are just worth less per share on paper.
Also, this is a buying opportunity for some. If you are rebalancng your port based on percentages then you would shuffle some money out of your winners (maybe international) and into some of your losers (like REIT’s maybe). That way you are selling high and buying low or DCA’ing into a lower cost basis.
As for buying bargains…many people have their dividends payed into a cash slush fund for times just like these. Now you can raid your slush fund and buy some bargain priced stocks who may have been unfairly devalued last week.
The market drop is not a good thing or a bad thing. There will be good times and bad. Lately times have been very good. Look for some bad to come own the pike sooner or later. Eiher way, get your AA in order with a risk exposure you can live (and retire) with and you will certainly weather the inevitable storm with less angst.
July 30th, 2007 at 4:02 pm
I can see how the buying talk makes sense. Take an extreme case where the market drops 50% in one day. Yes, there are stop guards in place to stop such a thing from happening, but let’s go with it for a second. That happens and your paycheck comes the next day and your 401K money goes in and buys a lot more stock than it could have before the crash. Let’s say the market recovers in the next ten days (again, very unlikely, but it’s an extreme example to prove a point). Now all that stock that you bought in your 401k is worth a lot more… I’m hoping the market collapses for about the next 25 years (where I’ll continue to buy stock) and then recovers for me to cash out and retire :-).
Some of the points you made (”why did you have money sitting around not in the market?”) assume that people are sitting on the sideline with the money. What if you just earned the money?
July 31st, 2007 at 12:43 pm
Flosy21, I think you missed the point of my post. I’m not alarmed by the market drop at all. As I said, I will not complain about losses - that’s what being in the equities market means. What the post is about is how people comfort themselves with stock phrases like ‘it’s a buying opportunity,’ and I get sick of it.
Lazy Man, I have a friend at work who’s hoping for the exact same market moves as you. Years of low prices while he’s buying and a huge spike right before he retires.
July 31st, 2007 at 4:47 pm
I concur with flosy. I also tire of the drumbeat to buy at every little downward hiccup, but I do prefer to buy when emotions are wreaking havoc on folks and shares can be picked up more cheaply. It’s more fun then, frankly, if not a better deal than purchasing when everyone else is fevered. And we’re buying with the percentage of portfolio we keep in cash for precisely these events, replenishing the cash reserve over-time or as we sell back those shares when the fever returns. No big deal. I didn’t lose 5% last week because I didn’t sell anything — my guess is neither did you.
August 2nd, 2007 at 4:01 am
Hi, great points ! liked the simple and intelligent perspective,
but can you explain the losses, do you rationalize them ?
August 6th, 2007 at 8:03 am
[…] Despite the downturn in the stock market, Advanced Personal Finance argues that no, it’s not a buying time. […]