I’m Going to Do the Exact Opposite of What You’re Doing! So There!

If there is one sure rule about Wall Street, it’s that they follow the herd. And it’s hard to make money when you’re just following other people’s investment path. And when the herd starts acting irrationally, driven by fear and not economic reality, it’s time to stand back and look at a contrarian strategy. Keep in mind that the market may not recover for another year. Use that information to your advantage by dollar cost averaging your way into any new positions over the span of 9 to 12 months (for e.g, if I wanted to buy $2400 of stock X, I would buy $200 per month over the next 12 months). This will help ensure that you buy at a good price if the market continues to fall.

The time to buy is now, when stocks are cheap and when the inevitable rebound in prices will accelerate your return. If you are dollar cost averaging, congratulations, you are buying more stocks per month today than before and this can only add to your return. But it might still be worth it to add to, or take new positions in, your portfolio to help boost your return.

When I look at the stock market right now, I see a fire sale. Everything has been marked down 50 to 80%. And while some stocks deserve this kind of correction in price, others do not. But where to find the gems in the rubble?

I see three strategies to picking winners.

1. Buy a cheap index fund. Don’t fool yourself. The stock market is going to rebound and make up all its losses. And historically, the bull run after a severe bear market shows steady returns annually until previous peaks have been reached. Buying an index fund is a safe way in investing in the overall market and participating in the recovery that is sure to come.
2. Follow what your favorite stock market guru is doing. For example, the great Warren Buffet just purchased Goldman Sachs and General Electric, investing more than 8 Billion dollars into these two companies. GE’s dividend right now is around 6% further boosting returns if you reinvest the dividends.
3. Invest more in your favorite fund riding your fund manager’s coattails to help guide you to higher returns. The best strategy in picking a mutual fund is to pick the manager running the mutual fund. In times like these, it makes sense to double down your monthly investment on your trusted mutual fund maven. (You did pick a fund because you trusted, liked and agreed with the investment strategy of the manager, right?)

Good luck and Many Happy Returns!

Disclaimer: Any stocks, funds or gurus mentioned in this article are not recommendations. They are opinions and are solely this author’s. Please use due caution and do your own research before investing your money. You are ultimately responsible for your own wealth.