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An Expert Weighs In: Is Now the Time to Buy?
By JLP | November 12, 2008
Recently I posted the question Now’s The Time to Buy - Right? and I have read and written similar articles ever since the market started its decline.
Finance professor John Cochrane from the University of Chicago Booth School of Business has a very interesting opinion peice in the Wall Street Journal called “Is Now the Time to Buy Stocks?” In it he weighs many of the issues including the historical dividend/price ratio, the volatility index, behavioral factors like risk aversion, and the standard portfolio rules - and why they might be wrong.
His analysis is interesting and much more in depth than mine, and his conclusion is as follows:
If you’re less leveraged, less affected by recessions, and have a longer horizon than the average, it makes sense to buy. If you’re more leveraged, more affected by recession or have a shorter horizon, it might be the time to sell, even though you might be cashing out at the bottom. If you’re about the same as everyone else, do nothing and relax. If you’re wrong, at least you will have excellent company.
Another pearl I enjoyed was the following, an good point to always keep in mind:
The average person must end up holding the stocks and bonds that are out there. Therefore, you should only ever buy, sell or rebalance if you’re different than the average person. We all like to think we’re smarter than average, but at least half of us are deluded, so that’s a dangerous way to invest.
More from Meg at The World of Wealth
Topics: Miscellaneous |