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Why Buying Time Is Not yet Nigh

Coming on the heels of a rotten January and a dismal early February, an unusually optimistic headline appeared on Marketwatch.com last Friday before the market opened: “Bottom fishers, the time to buy stocks is nigh.”

Lo and behold, as we used to say in the 19th century, the market rallied on Friday. Happy days are here again.

Or, maybe not.

Not a Bottom

As an amateur market psychologist, I beg to differ with the editors at Marketwatch, although in fairness their story did say that any rally could very well be of a technical, short-term nature. Maybe Friday’s optimism will last, but my sense is that it won’t. First, I don’t think we’ve reached bottom yet and, second, once a nadir is reached, there is likely to be a considerable lag before a sustained buying time is nigh.

That conclusion is not based on technical analysis or financial fundamentals, but on investor sentiment. The general mood of investors as far as can be discerned by interest in the market, comments from readers on investment sites and the ratings of financial TV is that the terrible performance of 2016, thus far, has been bruising—but since investing is for the long haul and since markets always come back, it’s best to stay invested and see this through. At least, that’s what seems to be the prevailing mood.

To take a leaf from Valentine’s Day, any disillusion investors feel these days is more like a lover’s spat than a desire to get divorced. Unfortunately, a tiff is not the basis of a market bottom. We won’t see a real end to falling prices until the spat turns into animosity, hatred and a blood feud

A Real Turning Point

A true market buying opportunity will only come, in this armchair analyst’s opinion, when Cramer is shouting and no one listens, when mutual funds have stopped hemorrhaging redemptions but no one is buying, when government securities regardless of paltry yields are the investments of choice and when anyone who has a brain will tell you that they’ll never invest in stocks ever, ever, ever again. That, my friends, is a buying signal that buying time is coming.

Of course, when investor mood changes that much and most people won’t go near a stock, there’s not much demand to fuel a rally. That’s why, like after the stock market crash of 1973-74 in the wake of the first oil crisis, markets can remain in a kind of brain-dead, go-nowhere mode for a long time. It was not until the early 1980s and Fed Chairman Paul Volcker’s tight money policy brought inflation under control that investors realized that the worst was over and buying stocks made sense.

Courage, Courage

Yes, investors who bought stocks right before this mood change occurred made out better than those who waited. But, it takes loads of courage to go against the prevailing wisdom and buy stocks when everyone says they’re the world’s most rotten investment.

If you wait until everyone hates stocks and have the courage to act before everyone realizes it’s a good time to buy, you’ll be a genius. If you wait a little longer, you’ll be OK too. So be patient. It’s not nigh time yet.

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