Buying Bathing Suits in Winter

December 17, 2011 at 3:06 pm 3 comments

Buying fire insurance when your neighbor’s house is on fire or flood insurance as your car floats down your driveway can be a very expensive proposition. Stuffing money under the mattress in money market accounts, savings accounts, CDs, and low-yielding bonds can be a very expensive proposition too, as inflation eats away at the value and the auspice of higher interest rates looms. However, buying things when they are out of favor, like bathing suits in the winter, is an opportunistic way of cashing in on bargains when others are uninterested.

Speaking of uninterested, CNBC recently conducted a survey regarding the attractiveness of stock investing, and according to the participants, there has never been a worst time to invest (as long as the survey has been conducted). Despite consumers planning to spend +22% more on gifts this year, the national mood has not been worse since the financial crisis began in earnest during 2008. Specifically, as it pertains to stocks, 53% of Americans believe it is a bad time to invest in the stock market (SEE VIDEO BELOW).

If that is not proof enough, check out this cool picture posted by Paul Kedrosky showing a mood hedonometer with the lowest reading since the 2008 market disintegration:
 

CLICK TO TO ENLARGE

Not a very happy picture. The study filtered through 4,600,000,000 expressions posted by 63 million unique Twitter social media users and graphically displayed people’s happiness (or lack thereof).

Endless Number of Concerns

There is no shortage of concerns, whether one worries about the collapse of Europe, declining home values, or an uncertain employment picture. But is now the time to give up and follow the scared herd? The best time to follow the herd is never. As the old saying goes, “the herd is led to the slaughterhouse.” Investing is game like chess where one has to anticipate and be forward looking multiple moves in advance – not reacting to every shift and move of your competitor.

Certainly, investing in stocks may not be appropriate for those investors needing access to liquid funds over the next year or two. Also, retirees needing steady income may not be in a position to handle the volatility of equities. However, for many millions of investors who are planning for the next 5, 10, or 20+ years, what happens over the next few months or next few years in Italy, Greece, or Spain is likely to be meaningless. As far as our economy goes, the U.S. averages about two recessions a decade, and has done quite well over the long-run despite that fact – thank you very much. Investors need to understand that investing is a marathon, and not a sprint.

December may not be the best time to head the beach in your swim trunks, bikini, or thong, but winter is now upon us and incredible deals abound (see deals for women & men). It may also be windy outside with frigid conditions in the water for stock investors too, but with winter beginning this week, the amount of bargains for long-term investors continue to heat up no matter how chilly the sentiment remains.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in Twitter, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

 
 
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Entry filed under: Behavioral Finance, Themes - Trends. Tags: , , , , , .

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3 Comments Add your own

  • 2. Random Blowhard  |  December 19, 2011 at 4:58 pm

    Buying things when they are out of favor, like bathing suits in the winter, is an opportunistic way of cashing in on bargains when others are uninterested.

    Only if the market is in fact mis pricing the value. If it is correct, the strategy above is a fantastic way to go broke fast by doubling down on losers.

    The market is always right, until it is not…

    Reply
    • 3. sidoxia  |  December 19, 2011 at 5:10 pm

      Tom:

      Agree with you. Your view of whether a bargain exists or not depends on how efficient you think the markets are. I believe there is plenty of evidence that shows markets can be irrational (and remain irrational) for long periods of time. Eventually, over the long-run, these extreme periods of optimism or pessimism self-correct.

      ~WS

      Reply

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