“even though they might plummet.” That doesn’t compute with me, but Grantham is always worth listening to.
Grantham: You Should Buy Now Even Though Market Could Tank
From The Business Insider, March 16, 2009:
Should you really buy stocks now, when the whole world is going to hell in a handbasket?
Because stock prices are now low enough that they are priced to return about 10%+ per year over the next 10 years.
Importantly, this does NOT mean that stocks can’t fall another 50% from here. They can. And they very well might. It just means that, if history is any guide, stock prices should be compellingly higher 10 years from now.
Jeremy Grantham expresses the choice succinctly:
Life is simple: if you invest too much too soon you
will regret it; “How could you have done this with the
economy so bad, the market in free fall, and the history
books screaming about overruns?” On the other hand,
if you invest too little after talking about handsome
potential returns and the market rallies, you deserve to
Jeremy’s full argument below. Interestingly, he has again revised his “fair value” estimate for the S&P 500 down, this time to 900–which is still 20% above where the market is now. Before the market collapsed, Jeremy put fair value at 975. Let’s hope that trend doesn’t continue.
Remember, Grantham said the same thing at S&P 1,000. Deep value investors get too caught up in valuations rather than focusing on sentiment and cash flows. Value is in the eye of the beholder. The market doesn’t care what the “value” of your stock is. It doesn’t care what the PE ratio is. I am not saying that value investing is bad, but using value alone as a metric is like having no peripheral vision. And just about every value investor around has been side swiped because of it….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.