Trying to Buy Low so I can Sell High

May 12, 2008 8:17 PM

Please to give ideas on depressed stocks/funds/securities to put some money into during the downturn.

I have a new job! For the first time in a long time, I'm going to get to aggressively pay down my debt, and I've also budgeted a hefty percentage for savings.

With the world of finance what it is right now, it seems like there should be something out there that's seriously devalued but relatively safe that I can put some money into. I'd rather not invest in a company like Countrywide, which is suffering due to its own stupidity, but rather one that's hurting mostly because there's plenty of hurt to go around these days.

I'm not looking to turn $100 into a million in six months, or anything so silly. I'm fine with putting money somewhere and letting it sit for five years or more. I'd just like to strike while this iron is hot and maximize my chances of growing what money I can put away.

I'm not in stocks, but I've been interested in them for a long time. I'd be fine with opening an Etrade account to buy them with.

I don't want something that will need a lot of babysitting. I know people who play the options markets, and it just seems like way too much work.

Suggestions and Reasoning please?

(For the sake of brevity, let's just assume YANMIA {You Are Not My Investment Advisor})

posted by SlyBevel to work & money (14 answers total)

I'm not qualified in any way to say anything about stocks. That said, I've been looking around and playing with some numbers. This isn't the firesale you're looking for. This is a hellish market for long term investors and so many of the stocks that look like great values have hidden traps that retail investors really need to dig to find.

seriously devalued but relatively safe

There is no such thing. If there were, the market would bid up the price until it was @ or above value and it's not really safe regardless. This holy grail is what everyone and their grandmother is looking for right now.

It's worth taking a good look at companies that either export, or facilitate exports from the U.S., stay away from energy stocks (there's been a huge boom here due to oil prices and there's a good chance it's unsustainable).

Just forget individual stocks and get an S&P500 tracking ETF (exchange traded fund) unless you're willing to spend a great deal of time studying. If you do go the individual stock route, be careful to spread it out over stocks that aren't in the same sector (aka, diversify).
posted by IronLizard at 8:31 PM on May 12, 2008

Oh and whatever you do, make sure it's the opposite of what Jim Cramer is recommending that week.
posted by IronLizard at 8:33 PM on May 12, 2008

You should visit The Motley Fool and read the most recent articles. They're chock full of downtrodden-but-good-value stocks. If you have about $200 to spend on research, get a year's subscription to one of their premium stock-picking services and go with what they recommend.

You should probably do at least some basic reading before you undertake this, though. A Random Walk Down Wall Street might be a good place to start. You should also read something (an updated version of one of the Motley Fool books, perhaps?) that lays out the basic jargon and the difference between things like long-term and short-term capital gains, what P/E ratios are, etc.

Alternately...just start a Vanguard Roth IRA with a few thousand dollars and plunk it all down on their S&P 500 index fund. That's kind of the super-no-brainer option that generally* outperforms the market.

*"Generally" as in "has until this point, and we hope it will continue to do so, although if everyone plunks their money down in such funds, the overall effect we're hoping for will be greatly diluted and no one will get the return they were counting on
posted by limeonaire at 8:43 PM on May 12, 2008 [2 favorites]

This is probably not the best place to ask for stock picks. There are quite a few websites out there that do that, with varying degrees of quality. Fat Pitch Financial has a bunch of links (and here's another blog they left out). One of the top links from that list, Value Investors Club, is a really interesting website--to become a full-fledged member, you must submit an investment idea and be approved by the site admins. It's run by the Gotham Capital guys, apparently, who are the real deal.

But you should probably start by doing some reading. Graham's two books, the Intelligent Investor and Security Analysis, are the basics. For a more of an auto-pilot style of value-investing, see Joel Greenblatt's (yes, of Gotham Capital, mentioned above) book "The Little Book That Beats the Market". It has an unfortunate "get rich quick" style title and some goofy writing, but I think his underlying investment philosophy is solid.

This isn't the firesale you're looking for.

I generally concur with this. Outside of financials, many of which are serious value traps, I don't think this is one of those mythic undervalued markets.
posted by mullacc at 8:43 PM on May 12, 2008 [1 favorite]

First of all, the economy actually grew, if only slightly, in the first quarter of this year. Also, look at the charts on the Dow or the S&P. Don't fall for this media hype that would like us to believe that we are in an recession. I'll believe it when I see the numbers.

Now, with my rant over, let me also say this: there is no magic investment. If something has a huge potential for growth, it is high risk and therefore also has a huge potential for loss. If you are simply doing saving, anything that meets or slightly exceeds the inflation rate is fine. If you are investing (saving for over five years), then mutual funds are your best option. They average around 12% on your money. Something like 95% of mutual funds have made at least some money in any given five-year period, and 100% of mutual funds make at least some money over any given ten-year period.
posted by joshrholloway at 8:46 PM on May 12, 2008

I've been watching BNI go steadily (not rapidly, just steadily) up from the low 80's to 103 today. This was one that Warren Buffett liked because he was smart enough to recognize that high fuel costs would drive more businesses to use the rails. He also liked the company itself; the management and the upgrades they're implementing. I personally own NO stock in BNI -- I' ve just been watching it. (My personal strategy is to hedge with a few select foreign stocks. In my case, Chinese. The ones I've invested in are generally low profile mainstream stuff. Only one tech stock.)
posted by RavinDave at 8:58 PM on May 12, 2008

Unless you want to devote most of your time to identifying exactly the right stock at exactly the right time, just purchase 1-3 ETF (exchange traded funds). They're like mutual funds, in that they let you diversify, but they have much lower fees. Zecco.com offers free trades, which is nice because you can invest a couple hundred dollars every month without paying a commission every time. Some ETFs to look at would be a Total Stock Market fund (real safe), Emerging Markets fund (less safe, but potentially higher returns), European Stock Market fund, Commodities fund, etc. etc. Basically, you can tailor it to what sector/geographic market will go up without having to identify individual companies. Seriously -- this is the easiest, most hassle free way of getting 8-12% return over sufficient amounts of time.
posted by one_bean at 9:01 PM on May 12, 2008 [1 favorite]

Well, it's sure more fun to pick individual stocks, especially if you can find an interesting, persuasive, captivating recommendation. It's even more fun if (not when) they go up! But that's like betting on horses. You have to ask yourself, "Do I really want to save my money and buy risky stocks with it?" Oh, wait, that's redundant. All stocks are risky. For less fun, and less risk, stick with a mutual fund or ETF, as others have recommended.

You're thinking, The Market Is Down, It's Time To Buy. But what if the market goes farther down? That could happen if the recession comes (or if we're already in one). For example, the residential-mortgage debacle could take years to unwind. Imagine what it would be like if residential real estate prices fell every year for the next few years. Imagine what that would do to the economy. I'm not saying this is going to happen, I'm saying it might. I'm saying, nobody knows what the economy is doing today, much less in the future. It's all guesswork.

Would you be devastated if you bought stocks (or mutual funds or ETFs) now, and the market continued lower for years? Then maybe stocks/mutual funds/ETFs are not your best choice. You need to decide what your risk tolerance is.
posted by exphysicist345 at 9:26 PM on May 12, 2008

Wait until the blood runs in the streets. It ain't running yet. There's still a big downside to the current economy. Overall we are not undervalued yet. And take into account the actual rate of inflation (including energy and food) when considering yields.

Some real estate is a great buy right now if you don't need to be liquid.
posted by unSane at 9:28 PM on May 12, 2008

there should be something out there that's seriously devalued but relatively safe that I can put some money into.

You mean all the people with Ph.D's who have studied the stock market in academic setting for years; and all the professional traders who have been playing the market for decades - those guys, who set the price of a stock when they buy and sell it - they're all wrong, and you, with no experience in the market at all, are going to come along and be righter than all of them?

Well, it could happen. But it ain't likely.

After I wrote the above I thought to myself, "That said, I think I'll take a whack at the poster's actual question." The stocks that come to mind are all in ethically terrible categories - MO, CG, PM are undervalued tobacco stocks; ATK has what amounts to a worldwide monopoly on military ammunition sales; RIG has a monopoly on oil that no one else can get at, polluting huge swathes of ocean in the process. MRH, Montpelier Re (a reinsurer) has definitely had its stock price beaten all to hell in the last few years; I'd be a lot more bullish on them if their entire business didn't have the "special circumstance" of being in direct competition with Warren Buffett, which has historically been a severely losing bet.

I am with Cramer at least this far, though: I believe that if you buy an individual stock you need to read its last annual report, last quarterly report, and recent newswire articles before you buy it, and then you have to repeat the process at least once a quarter to stay apprised of changes in the situation. I do this because I find it enjoyable and interesting for its own sake. Since you're not interested in this kind of "babysitting," don't buy any of the stocks I mentioned above. Instead, buy an S+P 500 index, or a total market fund like the Wilshire 5000 or the Russell 2000.

I own a little bit of a total market fund just so that whenever I hear about some American company that's done something awesome and boosted its stock price, I can think to myself, "Hey, I own some of that." Likewise every time some Enron or Global Crossing pulls a stupid stunt, I think to myself, "Hey! I own some of that." This changes the way you think about it all; I recommend it.

I'm also with the folks above in that I don't think this is a very undervalued market. The S+P 500's P/E is 17.83, and that's with the 20% weight in financials dragging that number down considerably. Historically I think we're at a pretty rich valuation in the S+P, and corporations haven't even started missing earnings en masse yet, which everyone thinks seems to be on the horizon in the not-too-distant future.
posted by ikkyu2 at 11:00 PM on May 12, 2008 [2 favorites]

Visa, China Mobile, Low Cost Airlines. Whatever you do, work on the assumption that the USD is never going up again.
posted by markovich at 12:07 AM on May 13, 2008

It's really late, so I can't stay up to type much, and I apologize if this sounds brusque, but read and understand this link. If it were as easy as posting on a message board asking about safe, undervalued stocks, everybody would be doing it, in the same way that if there were a simple, safe way to get a free hundred bucks in the mail, everybody would do that. Word spreads.

Alternatively, think about it like this: buying low and selling high with low risk is the holy grail of stock traders. Everybody's seeking these stocks, including people whom Wall Street pays millions of dollars a year for sixty hours a week of work. That doesn't necessarily mean that these folks are better than you or I at picking stocks, but that's the market. There are a lot of them out there, and even more people in your position, looking for the same thing. If you want to look for companies whose price-earnings ratio is way down, then go for it, but there's no magic bullet — to beat a dead horse, if it were as easy as filtering stocks for low P/E ratios, everybody would do it, and Wall Street would be an affordable neighborhood in the nation's fifteenth-largest city.
posted by electric_counterpoint at 12:28 AM on May 13, 2008

Hi there, my name is OP!

...buying low and selling high with low risk is the holy grail of stock traders. (And the others like it)

Yeah, I get that. I think my tone in the question didn't quite express my acknowledgment of that fact.

So I'm not looking for this: "Buy Merck."
As much as I'm looking for this: "Seems like ETFs and Mutual Funds would be a good place to look for now."

Because yeah, if it were as easy as scratching around a bit and finding the poor, downtrodden company with a heart of gold and buying stock right before they go Google, then yeah, this would be another planet entirely. And I do get that.

Some of the answers here have already been of the latter type above, and that's great, and I'm really grateful for everything else here so far as well.

That said, I'm learning with every comment, and I literally won't know where to start yet if I do settle on a mutual (or whatever) I want to buy. So, please keep the recommendations and reasoning coming!
posted by SlyBevel at 8:53 AM on May 13, 2008

Well, I do like the Motley Fool Caps section (free sign ups) for ideas. It's a nice way to see what those with good track records are recommending to take a closer look at (I'm in there, I also fail at short term stock picking). One word of warning there: many of those players get their high ranking by shorting run ups ect. So if you look in their profile and it's 90% thumbs down, they're probably not the person to be getting long term investing ideas from.
I think their articles can be interesting at times but for the most part everything posted is just a big ad for their services.
posted by IronLizard at 10:02 AM on May 13, 2008