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Investing Tip: Buy in the Bear Market

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I’ve just finished two news articles (Google: Party Over and Google misses Street targets) on digg about the Google stock. If you remember, in 2004, the Google IPO was the hottest topic covered in the news Analysts predicted that the amount and the demand would multiply the IPO price significantly on the stock’s opening date. Everybody wanted to get of hold of some of the company’s shares. The starting price on NASDAQ was $85. By the end of the day, demand was so great that the price rose to more than $100. As speculated, Google was a stellar performer it gradually rose from the IPO $85 to $432 on Tuesday, January 31, 2006! The Google stock was definitely a winner



Price Drop

Suddenly, this winning streak took an unexpected turn for the worst after-hours on the same January 31, 2006. Just recently, Google released the results of its fourth quarter earnings. Because of a tax increase, these figures were lower than expected by shareholders. Consequently, trading volume rose to more than 3.5 million shares during after-hours. Investors cashed out their Google shares making the price of GOOG drop a whopping 19%! Take a look at this graph from Yahoo Finance.

goog.gif

The price drop is astonishing! It’s too bad that I don’t have a lot of spare money to invest. I would buy a number of Google shares right now. “Why?” you ask. Shouldn’t I panic and avoid Google like the plague since it dropped so significantly?

Investor Mistake

This is the mistake many newbie investors (don’t worry, I consider myself one of them) make. They have money to invest and what stocks do they turn to? Microsoft, eBay, Google, McDonalds, Coca Cola, and GAP. They invest in companies that are steady, respectable, solid, and blue-chip. These companies are in their heyday golden years. I see this as a problem because while these companies offer safety, the tradeoff is slow growth. Many people buy stocks when the company is popular and it is at its height. Then, they cash out at the slightest indication of decline. More than often, these people have missed the steep, upward, sometimes-exponential growth. You’re supposed to “buy low and sell high” right?

Buy Low, Sell High

google.gifI’m not suggesting to buy shares from a no-name, unproven company. There are ways to invest in big-name companies and still get a great return on the buy-low-sell-high technique. Google is a fine example of this. Personally, I think that Google will definitely get out of this 19% rut. It is a solid, outstanding company that is always full of new innovations. It is almost as much a staple to computers as Microsoft! If I buy shares now and the Google share prices rise to their original mark, I will have gained 19% with still much possibility for more growth!

Martha Stewart Omnimedia

A historical instance of this can be seen in Martha Stewart Omnimedia. Recall the Martha Stewart scandal with ImClone. Her company’s stocks plunged below $10 during the summer of 2002 in the midst of the brouhaha. Now that she’ been relased and being active in her business, shares of Martha Stewart Omnimedia have almost touched the $40 mark last year!

A keen investor would have bought stocks in her company during the summer of 2002.

Conclusion

So what’s my suggestion? Buy in the bear market. The stock market has a tendency to rise and fall, rise and fall. This is the business cycle of recession and boom. Now, I believe that we are in the bull market.

But, you don’t have to wait for the bear market to arrive. Just wait for a tragedy with a happy ending like Martha Stewart. Who knows? Maybe Google will experience the same good fate. I, for one, believe it will and I just put in an order from my online broker to invest in Google.

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Posted on Sunday, February 5th, 2006

One Response to “Investing Tip: Buy in the Bear Market”

  1. Derrick Says:

    It’s actually a nice and useful piece of information.
    I am

    happy that you shared this useful info with us. Please keep

    us up to date like this. Thanks for sharing.

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