Wednesday, September 21, 2011

For Those With Significant Cash, Buy Stocks

Buying opportunities in the stock market--even if not major bottoms--are naturally associated with bad news or seemingly intractable economic or financial problems.  After all, if there were no worries, wouldn't investors already be fully invested in anticipation of wonderful, profitable opportunities (remember the Internet stock mania of the late 1990's)?

There surely is much to ponder--even fear--today.  But key measures of investor sentiment that I follow suggest that current stock prices generally reflect considerable anxiety already.  Conditions are not as depressed as they were in the spring of 2009 (before stock prices roughly doubled over the next two years).  They don't have to be.  There can still be a significant rebound.  It is difficult, if not impossible, to identify a plausible catalyst for higher stock prices.  There just needs to be something that is less bad than expected.

With depressed sentiment and the shares some of the world's leading companies selling for 10-11 times current-year earnings, dividend yields of 3-5%, and strong cash generation by the underlying businesses, I'd be buying.

I'd be buying, that is, on the condition that one has significant cash reserves.  One of my strongest investment principles is not to be fully invested so there will always be available cash in case what initially seemed like excellent values fall in price and become even more attractive.

Steve Lehman

S & P 500:  1167 

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