Bottom Picking

11/03/2008 10:08 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

No one knows for sure where the stock market will bottom out—or if it already has! But for sure, a lot of people are wagering big money that they can pick bottoms in individual stocks, if not the entire market. Remember, even on the worst down days, for every frantic seller of stocks, there is a buyer on the other side. 

That’s why the market is always right—unlike the pundits on cable TV who give their opinions. They’re always forced to give a disclaimer and disclose whether they have a position. Frankly, I’d love to hear one of them say: “We just bought a lot of this stock.”  Or, “We’re going to buy this stock tomorrow, after we let you know how much we believe in it.” 

Surely, you’d rather take your advice from someone who’s putting his money where his mouth is.  If they’re talking about large-capitalization stocks, it’s hard to imagine that their buying can push the stock so much higher that it’s no longer a good investment. In fact, if it is such a thinly traded stock, you wouldn’t want to follow them into it. After all, they won’t be around to tell you when they’re getting out. And you won’t want to get caught in their backwash.

Bottom picking is a public art these days. There’s been no letup in the cable TV commercials or ads in financial publications offering trading advice. Whether it’s a new computerized “system” or a seminar they’re offering, you can be sure it’s pricy.

But think about it: If you really had the sure-fire technique for picking bottoms, and selling at tops, would you be selling it for $289 a year? Or even $1,500 for an all-day seminar? Wouldn’t you be basking in the sun on your yacht, trading by day and partying by night?

Still, everyone’s focused on picking the bottom. And you can be sure that next year or in the next couple of years, when the market is safely in a new bull run, someone will be running infomercials touting the fact that they picked the bottom in 2008 (or 2009,or whenever)!

Well, you, too, can brag about picking the bottom—if you follow my sure-fire technique for buying at the bottom, or at least within at least a few days of the market lows:

Just keep investing in your 40l(k) plan on a regular basis. One of these months, that $500 regular contribution will hit just as the market is bottoming out.  Then you, too, can look back and brag about your market-timing prowess. 

Hey, don’t argue. Remember, free advice is worth exactly what you paid for it! What do you think? Can you call a market bottom like the pros?

Related Articles on MARKETS