“How much further do you think stocks will drop?”
My friend asked me this question over the weekend. Instead of answering right off the bat (you’ll see what I think in a minute), I wanted to gauge his level of anxiety.
So I responded: “Well, how much do you think we’re down already?”
“The market must have tanked at least 10%,” he replied.
Not even close.
As of Friday, the S&P 500 Index was down just over 3% … it only feels much worse.
And with that, the cycle of investor emotion was on full display.
Investing Would Be Easy If It Weren’t for This 1 Thing…
Coming up with a price and return target is simple enough.
Last week, I showed you how to evaluate the return potential for any equity security — whether it’s a company, exchange-traded fund or an index like the S&P 500.
But whatever projection you make, getting there is the hard part.
Just look at the past few months. Going into late January, investing seemed … almost easy.
Stocks had rallied since late October, with barely a pause or pullback. As more investors became bullish, stocks continued rising. The feeling was almost euphoric.
But greed and optimism drove the stock market too far, too fast.
Take a look at what I mean in the chart below. The green line is the percent of investors that are bullish, according to a survey by the American Association of Individual Investors…
On January 23, over 45% of investors were bullish — the highest level since late 2018.
And since then, the stock market has pulled back. The S&P 500 turned in its worst January since 2016.
But now, another emotion is setting in…
Use Fear to Your Advantage
Greed and its counterpart, fear, are powerful emotions.
For many investors, they are the cause of poor decisions … buying and selling at the exact wrong time.
But disciplined investors turn greed and fear into opportunities.
You already know the famous Warren Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”
Well, now is the time to be greedy.
The same investor survey indicates that fear is running at the highest level since October 10, 2019. That was the beginning of an advance that took the S&P 500 13% higher!
In other words, use this pullback to add to your positions or pick up new ones.
Ted and I have highlighted several opportunities recently. And of course, if you’re a subscriber to The Bauman Letter, you get a fresh pick every month. If you aren’t and would like more details on how to join, you can go HERE.
Either way, I hope you’re feeling greedy. Because the time to buy is now.
Research Analyst, The Bauman Letter