As anxious investors tremble in their shoes, Barron's tried to sooth those fears this week with a cover that most contrarian's see as an opportunity for the market to go lower.
The March 5th cover boldly states, "Stick with the Bull".
While I believe the market will rebound towards the later part of the month, history shows the best time to buy stocks is when it is most people are scared. Trading bottoms usually occur after high volume sell-offs, or they can unfold after several days of selling which discourages the majority of investors.
While this market has been notorious for not complying with historical trends, the latest Barron's cover does not reflect a traditional market bottom.
Investment guru's seemed to be stuck on the same two opinions;
1) A 5% correction would be a normal pullback, and very healthy for the markets. Their consensus is BUY now.
2) Another consensus is to buy when the S&P declines 10%, but not before.
Our take on these two opinions is to split the difference, and raise portfolio allocations gradually.
On a pullback of around 8%, we will begin adding to our equity allocations. We like to say gradually because an 8% decline can become a 10% decline very quickly. If the markets continue on the downside, be prepared to raise your allocations again.
Warren Buffett knows how to play this game very well. He only buys "big" on "big" declines. When Coca-Cola decided they wanted Coke to taste like Pepsi in the early 1980's (Remember "New Coke" and "Coca-Cola Classic"?), Buffett bought big.
Until a major buying opportunity presents itself, Warren is content with keeping a huge amount of money in cash. This does not take genius, this takes patience. Sometimes it takes several years.
The problem with many investors is they always feel like they have to do something. They want to be rich like Buffett, but they won't allow it to happen.
One of Buffett's favorite sayings is "I like to wait for the perfect pitch". This is not very difficult to understand, but for most, it is very difficult to do. Being "patiently aggressive" is not a trait that many can embrace.
In summary, today's market action looks more like an oversold bounce rather than a reversal.
I tend to lean more towards the Warren Buffett approach to investing rather than the "Veruca Salt" approach. You remember Veruca don't you? She was the little girl on Willy Wonka and the Chocolate Factory that said, "But daddy I want it now!!!!!!!!!!!!"
Remember what happen to Veruca? She went down the garbage chute. Veruca Salt represented one of the Seven Deadly Sins: greed.
