Friday, November 21, 2008

50% Off Sale

These are the signs that most people are seeing now at stores across the country, especially as we head towards Thanksgiving and that great shopping day known as Black Friday. Trouble is, since we have been told by the media that we are in a recession, a lot of stores have started their After-Thanksgiving Day sales early, in an effort to boost sales and keep their shops in business. After all, some businesses might be lucky to still be open by Thanksgiving...Circuit City for instance. Now everyone does like a sale. Who wants to pay full price? Retail, List, Rack, etc. We have been trained as smart consumers to find the best prices, and then negotiate for even lower ones. No one wants to leave "money on the table". My wife does most of her shopping at discount stores and second hand establishments. If she does go to a Target or Walmart, its "go for the discount" racks and look for the deals on the end caps. But what about the stock market? For some reason people don't like to buy things on sale here. If the price is reduced, there must be something wrong with it. After yesterday's market losses, the second triple digit loss in 2 days, we are now in some very unfamiliar territory for today's young investors. BEAR MARKET. Since the market highs of October 2007, the S&P 500 and the Nasdaq have gone down more than 50% in value. The Dow Jones, slightly less at 47% but who cares at this point? So where are the buyers? There are plenty of opportunities. Most of the big bank and energy stocks are down between 60 and 80% from their highs. Well, obviously some people are afraid they might go even lower (or bankrupt). When will we see the bottom? Now this is certainly a bad market we are in, but remember, bear markets are normal events. Just maybe not this severe. Since 1957 when they began tracking the S&P 500, there have been 9 bear markets (not counting this one), averaging a 25% loss and lasting between one year and 18 months. The last time we saw a market this bad was 1973-74 when the S&P 500 lost 48% and the Nasdaq gave up 55%. Well before you decide to cash in your chips, remember this, in each of the previous 9 bear markets, the one year return following the market bottom, was 35%. Now that won't get you back to even, but it is a good start. And unless you are over age 55 (which most of my readers are not), you will have time to make up your losses in your 401k accounts. So get out there and enjoy the sale...there's bargains a plenty!

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