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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Venkie who wrote (33489)	3/14/2001 3:28:16 PM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Five Reasons to Buy... Wednesday March 14, 12:36 pm Eastern Time MotleyFool.com - Fool News By Motley Fool Staff <<Do falling stocks mean great buying opportunities or traps waiting around the corner? In this article, we discuss five reasons a down market might mean a good time to buy. (This article has a companion piece, "Five Reasons to Sell.") Bargains abounding? "Great investment opportunities," Warren Buffett once said, "come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised." The cautious Buffett sees opportunity in times of trouble, and so might you. With stocks hurting badly, many high-growth companies that once seemed "priced-to-perfection" now have more reasonable valuations. That's created potential buying opportunities at some of our favorite companies. But tough market conditions also create bargains for value investors. Look for stocks trading at low multiples with profits, wide moats around their businesses, and -- most importantly -- catalysts for growth. Market-leading companies often surface from difficult conditions with new revenue streams and expanded market share, as they capitalize on the troubles of weaker players. Got cash? Maybe you're sitting pretty, having met your expenses and still saved some green stuff earned from your hard work. Anytime is a good time to invest in stocks, but the recent market drops underscore a few essential guideposts: First, pay off any credit card debt before you dip your toe into the market. Returns from stocks are unlikely to exceed the interest rate you're paying. Second, before you put any money in stocks, make sure that you absolutely will not need that money for at least five years -- if not longer. You should also keep a separate rainy day fund, worth perhaps three to six months of living expenses. If you expect to make a large purchase in the near term, keep that money away from market fluctuations by parking it in a money market account or similarly secure vehicle. With that done, study companies and buy only those whose products and businesses you understand and think will make even more money. And go slow. There's no shame in caution. Opportunities will not go away. Dollar cost averaging Whether the stock market is up or down, dollar cost averaging is a smart strategy for any long-term investor. Heck, most of us do it with our 401(k) programs every month without giving it a second thought. But investing an equal amount of money on a regular basis theoretically dictates you'll buy more shares of a company when the price is down, and less shares when the price is up. With that in mind, now may be a good time for you to check out the concept of Drip accounts. For investors without a great deal of disposable income, Drip investing -- the automatic investment of cash and dividends into fractional shares of a company's stock -- is a great way to begin investing small amounts of money, while minimizing costs. When applied to market-leading companies with strong business prospects, this can be a very rewarding approach. Can you handle volatility? Investors who get into the stock market know they stand a good chance of watching their holdings fall in value at any time. Today's market is an especially good reminder of that, and investors getting into stocks today must be prepared for sharp near-term losses. Investors who can't stand to see their holdings decline, though, have other options: bonds, CDs, and money market accounts, for example. Even so, without a steady diet of stocks, it may require exceedingly careful planning to meet your financial goals. It underscores the importance of careful planning. But though a dreary economic outlook has forced many companies to lower earnings forecasts for the rest of the year, businesses' spending patterns will rise and fall with the economy. With a potential tax cut on the way and banks still lending, it's likely the economy will eventually recover in time. (Long-term, there's no question that the best place for your money is the stock market.) Can you afford to wait? Even a well-researched stock purchase at a sensible valuation can cause you sharp headaches from time to time, but if you have enough confidence in your decision to see it borne out over several years or even decades, you stand to benefit plenty of gains without ponying up for transaction costs and short-term capital gains taxes. Remember that there's quite a difference between actual and paper losses. You only lose money when you sell, and while that doesn't mean you should just laugh away losses, it does mean that if you selected a business that can weather the storm and keep performing -- even if its stock doesn't on a day-to-day business -- you'll be rewarded...>>