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Tales of a Technician: More Reasons Why I’m Buying

October 4, 2022

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Last weeks post was titled “8 Reasons Why I’m Buying Stocks.” I’m feeling even more bulled up this week so I wanted to pound the table once again. Heaven knows we need as many doses as possible of bullish messages after the relentless parade of bearish headlines that have been jammed down our throats.


Wall Street likes to fool the majority. When everyone is fleeing equities, the contrarian looks to buy. Sentiment measures show just how hated stocks have become. Here are two recent ones for your consideration:

LONDON, Sept 13 (Reuters) – Fund managers are “super bearish” with average allocations to cash at the highest since 2001 and allocation to global stocks at an all-time low, according to Bank of America’s (BofA) monthly survey of global fund managers for September.


And the ol’ AAII Investor Sentiment Readings showing max pessimism:

The consensus is very much in agreement that stocks are going lower, perhaps much lower. Long-term investors should lean the other way if for no other reason that history is on your side.

Stocks Fall, Risk Falls – Not the Other Way Around

With stocks deep in bear market territory and headlines bellowing about an imminent recession and much deeper losses to come, it might make you think that the risk of owning stocks is increasing. It’s not. Indeed, as stock prices decline, the risk of buying them decreases.

Here’s why.

You’re purchasing at lower valuations. This increases the margin of safety. When the S&P 500 is 25% off the highs there is less risk of it falling dramatically lower than if one were buying it at all-time highs. The media won’t tell you this. They’ll clamor about how the market being down 25% means its surely going down a lot further. But they’re wrong. History says so.

Think about what gives us the opportunity to buy low. Prices have to drop. And if we get a chance to buy really low then prices must drop really far. They don’t do that unless something bad is happening. As I’ve heard it said, you don’t get a fire sale without a fire. But if you wait for the fire to be put out before buying, then I assure you, you’ll miss the chance to buy low. The best prices come at times of peak uncertainty.

The other beautiful reality about the opportunity to buy when the S&P 500 travels south to bear country is that forward returns go higher.

Go look at the annual returns in the 3, 5, 10 years after any bear market of the past century. They’re above-average.

Do you want above-average market returns? Then be willing to buy when the future looks bleak.

You Don’t Have to Pick the Bottom

To get the benefits offered by a bear market you don’t have to buy the bottom. And that should be extremely comforting because no one can catch the bottom. Close enough is good enough. My fear is never that I’ll buy and the market goes temporarily lower. My fear is that I’ll never buy during a bear market and miss out on the inevitable recovery. That particular mistake brings massive regret.

Once more, with emphasis. It’s not dodging the next 20% decline that eats at the soul. It’s sitting in cash while the market goes on to double.

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