An Expert Weighs In: Is Now the Time to Buy?

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

4 responses to An Expert Weighs In: Is Now the Time to Buy?

  1. now is the time to buy.
    stocks have never been cheaper than this.
    do not follow the herd and put your money under the mattress.

  2. If you are asking yourself “Is Now the Time to Buy?”, then you are a market timer – and you know better than I when to buy and sell, or at least you think you do.

    If you are a buy and hold investor like me, then all the time is the best time to buy.

  3. rubin, unless you know something that the rest of us don’t, I find it hard to believe that you can unequivocally say that now is the time to buy.

    Are stocks cheap? Compared to the last year, sure!
    Will they get cheaper? Probably.
    Is now the time to buy? I haven’t got a clue.

    If you can stomach the volatility and don’t mind seeing your investment drop 20-40% over the next year, then yes. Otherwise, dollar cost average or stay out of the market until it starts its upward trend. This may not make you rich but at least it’ll help you sleep at night!

  4. i find it amusing that these experts aren’t very wealthy…those who can do, those who can’t teach. so…..

    general strategy is pretty easy and basic, the tougher gig is applying strategy and finding winners.

    @Gerard: now is the time to buy…so is tomorrow or the next day or weeks past. investments aren’t a all in one sum game, which people make buying stocks about…you buy and sell stocks over a continuum. so yes, i can unequivocally say it is time to buy.