New Year Strategy: Buy Low
By Bob Landaas
Most people who try to invest their own money will look at all of the articles that come out at the beginning of the year reporting last year’s winners and losers. Invariably, people tend to migrate to what went well last year.
I’m wired just the opposite.
I tend to cull the list to look at what got creamed last year. That’s where I want to look for possible opportunities. The whole idea is to buy low and have some hope of being able to sell higher at some point in the future.
So, for instance, if you look at some of the international funds, on average that group was off 14% last year. That’s a lot. There’s a wonderful opportunity to engage your savings in an area that is temporarily distressed.
University researchers measured and found that by almost 4 percentage points per year, investors’ portfolios performed better when advisors protected them from trading on impulse. To read the article, with links, please click here.
If you’re the type that needs to see improvement tomorrow, forget what I just said. But if you’re smart enough to lay the groundwork and plant the seeds, it’s only a matter of time before the dollar starts to decline again and those markets come back. You’re just not going to get all that many opportunities to buy international funds at a 14% discount.
How many times have we heard from people saying that they want to wait until things improve a little? What they’re telling me is they want to wait until things get more expensive before they buy. That’s really what you’re telling me when you say that you want the skies to clear, the sun to come out, you want to be sure of a brighter tomorrow before you invest. Well, you just paid full price.
I, on the other hand, am trying to get a discount on appropriate investments. For all the money that I’ve made for clients and for myself, I could say this until I’m blue in the face: Try to get a deal on what you buy. It may become a better deal later or stay a deal awhile, but it’s really hard to look dumb if you concentrated on getting a bargain when you deployed your capital.
The problem is that most of us are the opposite. We want to go into something that has done well recently because we think that the good times are going to continue in that category. Sometimes they do. Sometimes they don’t. But in all the trades that I’ve done over all these years, if you focus on getting a bargain when you buy something that fits in your portfolio anyway, you’re going to look pretty smart later on.
Avoid the temptation to buy what’s done well recently. Take a look at the funds that have been roughed up. If the fundamentals warrant it, if it’s appropriate for your portfolio, that’s a pretty good green light.
Bob Landaas is president of Landaas & Company.
initially posted Jan. 23, 2012