Another wild day in the market. Down nearly 300 points, up nearly 300 points, then closed down 127 points for the Dow. Clearly it is not a sign of a market that has bottomed when it exhibits daily volatility ranging from 600 to more than 900 points.
While the market is still trying to find the bottom, the New York Times today published an editorial written by Warren Buffet cheering the American people to buy stocks now. In the editorial, Buffet admitted that he doesn't know if the market will be higher next month or next year. All he is saying is he is buying while everyone is fearful, which is a correct characterization of the current market sentiment. I don't disagree or agree with Buffet's timing, but I do not find it to be the right time for me to start buying stocks for the long term. In Buffet's strategy, he is buying for the long term, 5, 10, or 20 years. By having such a long term investment time span, he doesn't care if the market won't bottom until it drop another 2000 points, and it won't be headed higher until another year or two from now. Even if the stocks Buffet bought end up losing 10%, 20% or 30% in the next year or so, it wouldn't make any difference to Buffet's livelihood. But if you are one of those people that only have a modest six figures amount in your investment and/or retirement account, and if you are facing retirement within the next 5 to 10 years, or having to put a child through college within the next 5 years, then you need to consider your future financial needs very carefully before following Buffet on buying stocks now. You need to ask yourself what if the stocks you'll be buying will drop 10%, 20% or 30% in the next year or so, and how these drops in stock prices affect you financially. In the case for Buffet, even if he lose $200 millions from his $400 millions account, he can afford to wait it out, will you have enough time to recoup these losses before your retirement or to put your child through college. Don't let the current stock valuations fool you into thinking they are very attractive right now. Remember these valuations are based on earning forecast made many months prior to the current financial crisis. After the earning forecast for these stocks are revised to reflect the changing environment in the economy, these stocks might not be attractive any longer.
I wish you well with your investments if you decide to follow Buffet's action. For me, I will keep watching for the market to signal it has bottomed.
