In down markets, embrace a consistent long-term strategy


Many investors figure they can’t beat the market. If the stock market increases by 10% in a year, they’re OK investing an index fund that replicates market performance to get that 10% – actually, probably a little less because there’s an annual fee to own an index fund.

Truth be told, that isn’t a bad approach. Outperforming the market is difficult. There’s even a popular school of thought called the Efficient Market Hypothesis that says you shouldn’t try to find individual stocks that are on sale. In other words, don’t bother determining how much a company’s stock is worth and if you’ve found a bargain. All the information about the company is already priced into the stock.

To illustrate this concept in a greatly simplified example, let’s say Company A agrees to buy Company B at, say, $54 a share at a date three months from today. Company A can afford it and has a history of following through on agreements, the deal was approved…

Read more…