Is it Time to Buy?

I want to buy stocks so badly. It is in my blood to buy when others are selling and vice versa. If there ever was a time to be optimistic, that time is now.

How can you not be excited about stocks today? All of the major indexes are down more than 40% over the last year with almost half of the losses happening in just the last week or so.

There is the proverbial blood in the street and fear is at an all time high. Value investors like me are starting to dip their toes in the water. A brave few are calling this the bottom.

Is it time to buy? For the answer, we need to consult my handy dandy road map. So far, following that map has served us well.

Are you taking my advice? Before the carnage began, I suggested that investors should sell stocks and sell stocks quickly. Even after the bailout was approved, I told readers of my column here that it was still not too late to sell. (See also: "Why It’s Not Too Late to Sell.")

I was right. You could have saved lots of angst and profits by rotating out of stocks like I did with my Rational Investor model portfolio. I moved that portfolio to 75% cash just before the worst of it.

Did I panic? I did no such thing. Instead I merely examined the evidence before me and adjusted my expectations for the future.

It was a slam dunk conclusion that in a world on the brink of financial disaster stock values must deflate. The price for the bailout had yet to dawn on stock traders. Even worse, the bailout may not save the day.

There were two big clues for the recent calamity in the market. The biggest clue as to what was to transpire in stocks was the dichotomy between the credit market and the stock market.

It simply made no sense that credit markets were trading as if the apocalypse had occurred versus stocks that actually went up in value during the first week after the Lehman collapse.

You could not ask for a clearer sign! al than that.

Another big clue that stocks were heading down was a bit more subtle…

Specifically, too many people were expecting the bailout to be a magic bullet. Stocks must certainly rise given the $700 billion stimulus package that was soon to be injected into the system.

Wrong, wrong and wrong again. If you have’t fired your buy and hold advisor, now would be a good time to go ahead and do that. They failed you miserably, but I digress.

So where does the road map tell us where to go now? Well in 99% of situations like this, I would agree with my value brethren. Stocks are way oversold and due for a sharp correction to the upside.

It is eerily similar to October, 2002. At that time I deployed 150% of my portfolio into the market at noon on October 9th. I missed the exact bottom of that bear by 3 hours.

Within less than 2 months I made nearly 50% on my portfolio. Could the same thing happen today? Yes, but there is one very big difference between then and now.

Mainly, the consumer was in much better shape than today. The 2001/2002 recession was extremely shallow and much of the pause in the economy was rooted in the deer in the headlights reaction of citizens in the wake of the September 11th terrorist attacks.

Blink and you missed it. Not this time. Only the bravest optimists is of the opinion that the current malaise will be short lived.

I appreciate the noble cheerleading. In fact, I am the biggest fan of the United States and its economy. We are resilient, but digging out of a debt hole is hard work. It takes time.

Consumers have no choice but to curtail spending. That means corporations will not make as much money. I heard someone describe the current state as being on Titanic before an ice berg tore a hole it its bow. (See also: "Consumer Shock: Spending Takes a Big Turn for the Worse.")

We can see this coming a mile away and yet we have no way of steering the ship away from trouble. T! he only choice we have is to take our medicine, and this medicine will be slow acting.

Oh, I wish the economy can rebound from the turmoil in quick fashion. With so many stocks trading so cheaply and fear as measured by the VIX, a snap back rally is sure to come.

Ah, but that’s what they said regarding the bailout. No, the road map says that we are close to the bottom, but time is needed before the all clear can be given. (See also: "When Will We Hit Bottom?")

I’m not worried about missing a rally here. We’ll have plenty of time to buy stocks once we get a better handle on what the future holds. Right now it is too uncertain to take unnecessary risk no matter how tempting.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.

Related Articles:

Fidelity Shares 401(k) Success Story

$6 Gas this Summer�US Economy Falls of Cliff

Tags: 2015 Silver Stocks ,Top Stocks 2015 ,Top Stocks To Hold 2015 ,Top Stocks To Hold In 2015 ,Top Stocks To Invest In ,Top Dividend Stocks 2012