Sunday, August 07, 2011

Wall Street crisis -- this is a great time to buy

When it comes to stock market crashes, there's usually three types of reactions:

(1) Sell.

(2) Hold.

(3) Buy.

When I know a market crash is coming like the one coming on Monday after S&P's questionable downgrade on America's prestigious triple A rating (AAA), my reaction is to sell smart and use the capital to buy more.

Each investor has a different life goal and different idea of when they are retiring, so your strategy must fit your goal.

In my case, it will be decades before I retire (and probably won't stop working); hence, I can afford to sell what I think won't give me any returns in the next couple of years and use that same capital to buy up companies that will outperform the market.

The psychology of fear is a valuable tool for the long term investor.  When there is a universal sell off, you can take advantage of it.  When you know a company has strong fundamentals, and is battered down by emotions rather than facts, that's when you buy.  My advice to young investors out there: this is a great time to buy.

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