I haven't uncorked the champagne yet, but the mood is noticeably better here in the comfortable confines of Chez Melvin.
Why? The market, of course - what else? It's trying to sell off, but it's not quite there yet.
Over the years, I have learned to love bear markets - the bigger and badder the bear, the better. While everyone else is panicking and selling their stocks, exchange-traded funds, and mutual fund positions for pennies on the dollar, I'm the one buying those positions for even fewer pennies on the dollar. When the bears are running, you'll find me paying bargain prices for great companies with wild abandon.
I've spent a lot of time studying what does and does not work in the stock market. When it comes to getting rich, the one thing that works - better than anything, pretty much guaranteed - is buying good companies when the stock market has fallen by 20% or more.
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Fortunes Are Born in Bear Markets
I keep a shopping list in my desk - it's packed with the companies I want to own and the prices I want to pay for 'em. I tend to it, too, updating it once in a while to account for new information or to add or remove companies.
Most of the time, sure, the companies on my list are trading for nowhere near the price I want to pay; every once in a while we get a sell-off that sends everyone (else) running for the door.
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And to go along with that list, I always keep some cash handy to go bargain hunting for what will ultimately be enormous profits when the market begins to climb again. Sure, some of my freshly bought stocks may go down - maybe even quite a bit. But when the markets turn back up, as they always do, they will absolutely roar higher; I'll see enormous profits.
And if you do as I'm suggesting today, so will you.
There's no shortage of investing strategies, techniques, approaches, what have you - some of them are great, and some of them are terrible. But the one simple strategy I'm advocating today - loading up on financially sound companies in tanking markets - can make you more money than most investors can even imagine.
Let me show you some examples using investments that I, as a market cheapskate, generally loathe. Yes, you read that right; these are some of my least favorite investments, which goes to show you how powerful this simple strategy is.
If you had taken the easy way out and pushed all your cash into an index fund (uuuugh!) back in early 2009 as the world was panicking, you'd have compounded your money at over 14% a year.
If you had bought Apple Inc. (NASDAQ: AAPL) back then, your money would have grown by 30% a year; 10 grand would be worth over $171,000 today.
Amazon.com Inc. (NASDAQ: AMZN) would have grown by 34% a year, and your $10,000 would now be $236,336.
If you had just bought blue chips like McDonald's Corp. (NYSE: MCD), you would have seen your money grow by 17% a year.
Any way you slice it, with virtually any investment you can think of, you easily beat the so-called professionals and hedge fund managers by digging your heels in and buying into chaos.
You don't have to take my word for it (although, I have to say, you really should; I've done very well scooping up undervalued stocks and bonds in bad markets). Take a close look at Warren Buffett.
History's Greatest Investors Know This Works
Before he and Berkshire Hathaway got too big to engage in Ben Graham-style, asset-based value investing, Warren Buffett bought big in bear markets and hung in until the inevitable turnaround.
(Between you and me, he probably wishes he could still do that.)
Hetty Green, the "Witch of Wall Street," was one of the richest women in the world back in the early 1900s. She described her moneymaking secret thusly: "When I see a thing going cheap because nobody wants it, I buy a lot of it and tuck it away. Then, when the time comes, they have to hunt me up and pay me a good price for my holdings."
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And that market turnaround really is inevitable. If for some reason they don't... well, the world's probably ending, in which case stock prices won't mean much anyway.
When it comes time to reckon with the taxman, you'll find you'll have to pay far less tax on your investments than individuals who trade in and out of positions or try and time the stock market.
If the markets implode, I'll feel some short-term pain. The stock I own will go down, but since I'm so tightfisted about the prices I'm willing to pay, history shows that they will probably go down less than most. They're all rock-solid financially; they'll survive and come roaring back to new highs at some point.
Learn to love the down, and know what to do when it strikes. Move decisively. It's the secret to getting rich in the stock market.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.