Updated Dec 2022
When is the best time to invest in stocks?
Hint: When the Masses Are Scared
Let’s start off with a bit of history. Look at the chart below; it will illustrate quite clearly when astute investors start to buy stocks.
If you purchased stocks between Sept 2008 and March 2009, you would be sitting on a fortune today. Sure, if one had bought back in Sept of 2008, one would have had to deal with a significant bout of volatility. However, the astute investor always deploys capital in equal lots and never deploys it in one shot.
Take a look at the chart below
When is the best time to invest in stocks: Tip 2
Amidst all the chatter surrounding the 1987 crash, it is often overlooked that it presented one of the most exceptional buying opportunities ever. When markets experience a sharp pullback or crash, fear and panic can lead investors to sell off even high-quality stocks at rock-bottom prices hastily. However, for those who remain level-headed and astute, this can be a once-in-a-lifetime opportunity to buy into the market. Of course, it’s not always easy to take advantage of such opportunities, as in the moment, it can feel like the market will never recover. This is where our tools come in, particularly the “Trend Indicator“, which helps us identify critical turning points in the market.
COVID Crisis: Another Stupendous Opportunity.
Undoubtedly, we are experiencing one of the most challenging times since the financial crisis of 2008, and many are wondering when is the best time to invest in stocks.
Hysteria has gripped everyone, especially in the U.S., and it’s feeding on itself as everyone from the top of the rung to the bottom is running around like headless chickens. Now, before we continue, we are not going to distort the truth or make up stories; in the short term, we have taken a beating, and it’s a bloodbath out there.
Having said that, we have never seen such a situation after having witnessed several crashes in the past, and this presents an opportunity for investors. Everyone at the Tactical Investor is freeing up all the available cash they can, and when the panic subsides, it will create a feeding frenzy of the likes we have never seen before.
When you combine zero rates, two trillion dollar injections by the Feds, and several more billion-dollar packages designed to stimulate the economy, the result will be a market melting upwards. The markets will be driven to unimaginable heights by today’s standards, and those who invest wisely will reap the benefits. Zero rates will also force a large portion of individuals on a fixed income to speculate, and these guys have a lot of cash sitting on the sidelines.
Buy when the insiders are loading up.
The best answer to this question is; When is the best time to invest in stocks? It is when the Insiders are buying hand over fist.
The chart above speaks for itself – insider buying has historically been a strong indicator of long-term stock performance. Currently, the sell-to-buy ratio is at a low not seen in a while, indicating that insiders are not just buying shares but devouring them. While insiders may not be able to time the absolute bottom of a market downturn, their purchases reflect their confidence in a company’s long-term outlook.
Looking back at the financial crisis of 2008, we see a similar pattern of insider buying. In October of 2008 and again in 2009, insider buying spiked just before the market bottomed in March 2009. This led to an 11-year bull run with some bumps along the way, but overall, insiders who bought during the crisis reaped significant profits.
Although the short-term outlook may be unpredictable due to current market hysteria, historical data spanning over a century indicates a bullish outcome in the long term. As Winston Churchill famously said, “never waste a good crisis.” During times of crisis, top-notch stocks can be purchased at a discount, offering the potential for spectacular gains.
Sir John Templeton to the Rescue
To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit. Bull markets are born in pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. If you want to have a better performance than the crowd, you must do things differently from the crowd.
The current readings indicate that insiders are not just buying shares, but they are devouring them, as shown by Vickers’ benchmark NYSE/ASE One-Week Sell/Buy Ratio of 0.33 and the Total one-week reading of 0.35, based on very heavy transaction volume. This behaviour is similar to what we observed in late December 2018, early 2016, and late 2008/early 2009, which were all spectacular times to buy stocks. The insiders’ actions seem to be sending a clear message that the current situation offers a similar opportunity for investors.. https://yhoo.it/2TV0cE2
According To The Naysayers: It’s always raining.
The naysayers can talk all they want about supply lines being backed up for months or other scenarios that they pull out of their rears. However, the best time to invest in stocks is when the markets discount all the bad news. Furthermore, these experts are severely downplaying the role of technology. Suddenly a host of businesses will see that a lot of personnel can be replaced with AI-based technology without interrupting the flow of goods. Replacing them will improve efficiency on a colossal scale.
Once the markets discount all the bad news, this massive mountain of money is going to flood the system, and it is going to make the Bull Run from 2009 look like Child’s play for the amount of money the Fed has already thrown into this market makes 2008 look like a stroll in the park. Officially we think they will throw north of $5 trillion; unofficially, the figure could end up being north of $10 trillion.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday night on CBS’s “60 Minutes” that “there is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.” https://yhoo.it/2JdtRlH
And there you have it, a tacit acknowledgement that forever Q.E. is real and here to stay. When the Fed states it will do whatever it takes, you better believe this statement.
Don’t Fight The Fed
If that is not enough, then this should help you understand what the Fed is willing to do, and by the way, we stated that they would take this route.
Struggling to illustrate the scale of the measures, T.D. Securities’ Priya Misra was left asking, “What’s bigger than a kitchen sink? “Wells Fargo’s Jay Bryson attempted to answer that question by comparing it to what the Bernanke-led Fed did during the last economic crisis: “The actions taken are breath-taking in their scope. Indeed, these steps surpass in breadth and depth the measures that the Fed created during the financial crisis a decade ago. If the Fed pulled out a monetary policy ‘bazooka’ during that crisis, then the steps it announced this morning are the central bank equivalent of ‘going nuclear.‘” https://yhoo.it/3bqrmIT
Regardless of whatever the expert’s state, one should never fight the Fed, for you will end up dead. Dead as in dead broke.
References
There are various studies and articles that support the hypothesis that buying stocks during a market crash, when insiders are buying, can lead to substantial returns in the long run.
- Forbes article: “Why Insider Buying Is An Important Stock Market Indicator” – This article discusses how insider buying can signal a good time to buy stocks and includes data from studies that show that insider buying tends to be a bullish indicator for the market. Link: https://www.forbes.com/sites/johndobosz/2021/03/25/why-insider-buying-is-an-important-stock-market-indicator/?sh=778d0e8c3221
- MarketWatch article: “Insider buying is at record levels; here are the stocks to buy” – This article reports on the high levels of insider buying in 2020 during the COVID-19 market crash and provides a list of stocks that insiders were buying at the time. Link: https://www.marketwatch.com/story/insider-buying-is-at-record-levels-here-are-the-stocks-to-buy-11601089891
- Investopedia article: “When to Buy Stocks: The Best Times to Buy a Stock” discusses various strategies for timing stock purchases and includes a section on buying during market crashes. It notes that some investors have successfully bought during market crashes when valuations are low and provides examples of past market crashes where buying opportunities arose. Link: https://www.investopedia.com/articles/investing/081415/best-times-buy-stock.asp
- CNBC article: “The smart money is repurchasing stocks as insiders, and hedge funds take advantage of the sell-off”. This article reports on the high levels of insider buying that occurred in March 2020 during the COVID-19 market crash and noted that some hedge funds were also buying stocks at the time. Link: https://www.cnbc.com/2020/03/26/insiders-buying-the-sell-off-as-coronavirus-pummels-stock-market.html
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