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REUTEMAN: Now's the time for action: Buy on way down

By Rob Reuteman, Rocky Mountain News (Contact)

Published October 11, 2008 at 12:05 a.m.

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I woke up at 5 a.m. on Friday, went straight to my computer and bought stock for an hour before the market opened.

It's a good thing - I think - that I was finished before trading began, since the Dow dropped 700 points in the first few minutes. Had I looked before I leapt, I may well have lost my resolve. But I had planned to finish my little buying spree before the opening bell for just that reason.

I'd been looking at my meager portfolio all week, and the prices of several stocks looked very attractive to me. Plus, the stocks I've made the most money on were the ones I bought during the last half of 2001 or the first half of 2002, during the last, much milder recession. So on one level, I've been looking at this current mess as a potential buying opportunity, waiting for the right time to pull the trigger.

Of course, trying to time the market at its bottom is a fool's game. But as stock guru James Cramer says, you want to "buy on the way down." That's a much broader target, and it makes common sense. So, in those terms, I think I nailed it. Let's face it, it's pretty hard right now not to buy on the way down.

I don't mean to come off like some expert stock picker. I'm not an active trader. I buy stock in companies I've researched to my satisfaction, and then I forget about it. Buy and hold, as Warren Buffett says, sometimes to a fault. I bought Whole Foods in 2002, for instance, watched the shares double in value and then watched them drop to a price below my first purchase. I won't do that again. I hope. But other than my bungled Whole Foods buy, I won't mention individual stocks I own. What happens in my brokerage account stays there.

Most of my retirement savings are tied up in a 401(k), and I dread getting the third-quarter statement in the mail, probably next week. I also have put a little money from each paycheck into a couple of mutual funds, and I got that statement Thursday. Minus $15,000 in three short months! I poured myself a bourbon and recalled that I've been with those funds for almost 20 years. I've watched them go up and down. Remember the primary lesson of dollar-cost averaging: If you put the same amount of money in each week, in times of a down market your money buys more shares. Then when the market goes back up, more of your shares increase in value and you make a bigger profit. I keep telling myself that.

The market giveth and the market taketh away. All of us, even the federal government, are learning that once again, on a large scale. And the federal government is taking the steps necessary to put the stock market's house in order. The pendulum swings between greed and regulation. We saw it swing to Enron-style excesses in 2001, and we saw it swing back to Sarbanes-Oxley curbs in 2002. We are watching it swing to another regulatory correction right now.

About eight years ago, I began putting some money from each check into an online brokerage account. I learned to buy stock myself, a little at a time. Honestly, I thought it would help me do my job better if I had some skin in the game, and of course I wanted to profit. It has been instructive in many ways, and I'm still ahead of the game, even if less so this year. (I should point out that I and the folks I supervise signed agreements not to buy shares of any company or mutual fund based in Colorado, so as not to slant coverage.)

On Wednesday, I went to see my banker to correct a fund-transfer glitch in my trading account, so I'd be ready to pounce. As we first shook hands, I blurted out, "I want to take out all my money right now." His face fell and he stammered, "Really?" I apologized for attempting a bad joke at a bad time. "Are people doing that?" I asked. "Nonstop," he said as we walked back to his office. He's been busy this week closing down brokerage accounts and transferring the money back into checking accounts.

That's called "locking in your losses," folks. You're not giving yourself a chance for a rebound. The market goes up and it goes down. As we learned in 2000, it doesn't stay up. As we'll learn this year and next, it doesn't stay down. You may want to get in on the action if you think like me, and now's the time.

Comment on this column at RockyMountainNews.com/business.

Comments

  • October 11, 2008

    8:31 a.m.

    Suggest removal

    ruckerz writes:

    The stock market is all about time. Time is something some people have (young 20's) and something some people do not (about to retire). However, when thinking about the future of the stock market (and hence the economic state of this country), I firmly believe the market will recover. Fortunately, I am in the former category (mid 20s) and am not worried at all. Sadly though I can speak only for myself.

    P.S. You better believe I'm buying.

  • October 13, 2008

    7:28 a.m.

    Suggest removal

    thincaboutit writes:

    FINANCIAL CRISIS: THE MUSICAL
    The economy is no laughing matter. But this parody about the economy is.
    Check it out at: http://www.youtube.com/watch?v=henMX3...

    If you prefer a non-partisan version, go to: http://www.youtube.com/watch?v=8hO4Al...

    Feel free to post or just pass around…
    SEE MORE PARODIES AT http://parodyandson.blogspot.com

  • October 13, 2008

    9:57 a.m.

    Suggest removal

    dencolo writes:

    Your buy on the way down message is WRONG, WRONG, WRONG. Hold all positions unless there is likelihood that one of your units will fail. Wait til the market hits bottom and stays for a while - month, two months, whatever. Bottom could be anywhere now.
    Put you cash which you wanted to blow in short term CD or MM and sit it out.
    My CD portfolio shows I am right.
    HL

  • October 13, 2008

    10:35 a.m.

    Suggest removal

    dencolo writes:

    Thank you for your Saturday article. I was able to relate to your experience of purchasing stock prior to the opening of the 700 point drop and wishing you had waited. Timing the bottom is just "fools play" but sometimes we violate our own rules and here is one of mine that I wished I had followed this past week.
    Always wait to trade until the EIA oil inventory numbers come out on Wednesday morning. I had a hunch that everything was going to be an insignificant change so I bought stock prior to those numbers coming out. When the report came out showing unexpected high inventories, I could not sell off my morning stock purchases fast enough and took "a good spanking." Next week I'll wait for the EIA numbers before I do anything!
    Anyway, I enjoyed your article!
    Best regards,
    Timothy Stolz