Thursday, 28 January 2010

Fear is your friend

Fear is your friend

When you take a long-term view, the horrific market indicators are actually your friends because they lower prices of the stocks you are interested in. Fear is your buddy. Doom and gloom are close pals. Economic devastation is your friend. In fact, you should want the market to freak out because there is no other easy way to get a fantastic price for a business. Of course, I'm speaking in an investing sense -- obviously a recession is no fun on a day-to-day basis. But fortunes are built in times like these.

Why should you care about a few years of poor results if someone is willing to sell you that business for a song? In two or three years, you could be sitting pretty while the seller will be left with only remorse.

But of course, we want to be choosy with our investments in these turbulent times, so we suggest you focus on:

  • Companies with good track records (earnings per share growth, return on equity)
  • Companies with strong balance sheets (low debt-to-equity ratios)

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