Mean Street: Why I’m Still Buying Stocks

Evan Newmark online at the WSJ.com:


"With the Dow down 10% over the last five sessions, some of you are probably wondering whether I’m still crazy enough to be buying stocks.

You know the answer. Of course I am.

Call me naïve, call me delusional. But I bought last Thursday and last Monday. I bought again yesterday — and if the market heads lower today, I’ll probably buy once more.

No, I’m not ignorant of America’s stumbling economy, France’s impending S&P downgrade or Wall Street’s sundry woes.

It’s just that U.S. large-cap stocks are already pricing in lots and lots of bad news. To be comfortable buying stocks at this level, I only have to be less pessimistic about future long-term corporate earnings than all the panicky sellers.

And that’s easy...

Nearly two-thirds of the Dow’s 30 stocks today will give you a dividend yield greater than the current yield on the 10-year Treasury. This list doesn’t just include quasi-utilities like Verizon or AT&T that yield a stunning 6%. At under $20 a share, Intel yields over 4% and trades with a single-digit P/E.

Are the attractive P/E multiples and solid yields in U.S. large caps a guarantee that these stocks can’t go lower? No, of course not.

Didn’t the collapse of Lehman and the recent S&P downgrade of the U.S. teach you anything? When it comes to investing, there are no absolute certainties, no guarantees. No investor has been able to repeatedly pick stock market tops and bottoms.

That’s why I stagger both my stock purchases and sales over weeks or months. You will never get it absolutely right. The best you can do is keep your wits about you when everybody else is losing theirs.

Time and time again, history has shown that investors who buy when others are frantically selling tend to make a lot more money..."

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Link: http://blogs.wsj.com/deals/2011/08/11/mean-street-why-im-still-buying-stocks/