Stock Market Setting Up for Its Next “Fire Sale”?

Investment Opportunity I Missed ThenWhile I was watching the screens on Monday when the stock market began to sell off on news Russia was performing military exercises off the border of the Ukraine, the last thing on my mind was to run for the exits. In fact, I was thinking that a great buying opportunity might be near.

Here’s the thing: I look at chaos or a struggling stock market as a potential buying opportunity to purchase shares that are essentially going on sale. I love stock market sales. Why pay higher prices for stocks, when you can wait and buy on weakness?

Think back 14 years to early 2000, when the stock market was imploding due to excessive euphoria and valuations in the technology sector. (Read “Where to Find the Best Buying Opportunity in This Stock Market Going Forward.”) When the dust had settled, there was a reluctance to enter and buy after the stock “fire sale.” Investors were clearly nervous that the stock market would venture even lower and cause 401(k)s to dry up.

My thinking was that it was a good buying opportunity to purchase stocks during a “fire sale” after what was clearly an extremely overvalued stock market, in which people were calling for the Dow Jones Industrial Average to reach 20,000. If you bought the NASDAQ back then, you would have more than doubled your money now, as the index steadily approaches its record-high of just above 5,100, which will likely be tested in the first half of 2015.

The same situation occurred back in October 1987, when I first started out as a junior analyst working at a trust company. I was fresh out of college and, luckily, had no money to invest because I was debt-ridden with student loans. Yet thinking back, I wish I had seized the buying opportunity that had occurred back then following what is now known as “Black Monday.” The collapse of the Dow that day was, in fact, a buying opportunity in the stock market that, while still rare, does happen.

When these types of excellent buying opportunities surface after a stock market collapse like we saw in 1987, 2000, and 2008, it’s a great buying opportunity to get stocks on the cheap.

That’s why I thought the Russia-Ukraine situation could be a potential buying opportunity if it lingers or worsens.

Now, if a war surfaced, I still wouldn’t be running for the exits. I would be careful, but I would be buying beaten-up stocks on weakness and acclimating after each dip.

The reality is that the stock market has proven to be pretty resilient over time and would be worth buying on chaos. Of course, we have seen some extended periods of market weakness over the last century; but in more recent decades, stocks have always been able to bounce back.

Have some money ready for the next buying opportunity; the stock market could be having another fire sale soon.