Keep things in perspective. The charts below illustrates that last week’s action simply brought the broad indices back from nominal all-time highs set earlier this month. Looking at the DJIA and the Nasdaq Composite, it is noteworthy that almost 100% of their 52-week performance came from movement just since the start of this year.
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IBM’s greater than 10% one-week drop and Apple’s regression to under $400 dragged down the tech index by 4.36%.
The summer of 2012’s market lows were set as expectations for worldwide recession were being priced into industrials and materials. Buyers of those stocks last May and June ended up big winners even though the economic conditions haven’t changed much since then.
Industry leaders like Deere (DE), Cummins (CMI), Caterpillar (CAT), and Schlumberger (SLB) now trade nearer to low points than to highs. Fertilizer companies Agrium (AGU), Potash (POT) and Mosaic (MOS) are similarly offered at near multi-year low valuations.
If you missed making money in these by passing on them last spring, you are now getting a second chance to acquire positions at great prices. “Buying low to sell high” requires actually getting in when the news is bad and expectations are low.
It’s better to buy when shares of solid companies are out-of-favor. Ironically, that’s when yields are best and risk is diminished.
Any stock could go lower in the short run. World-class companies that supply needed goods and services will always come back up when the cycle plays out. In an environment dominated by in-and-out trading, those who take a longer-term view are more likely to outperform.