Apparently, I may have been watching too much CNBC. Yesterday, when my "Dollar Cost Averaging on Steroids" (see previous posts) system flashed a buy sign, I considered passing on the opportunity. After all, the talking heads were throwing out scary statements like "collapse of our financial system", "worse than the great depression" and "worldwide economic collapse". Within the past couple of weeks, the feds were forced to bail out Fannie and Freddie, and Lehman and Merrill Lynch ceased to exist as viable, independent companies. AIG seems on the brink of being the next giant to go under, with a string of others in the line behind them. Projected losses are turning from billions of dollars to trillions (with a T).
Yet, times like these are the type that financial gurus are referring to when they talk about buying when the "blood is in the streets". The adage is true precisely because it is so difficult to find buyers in times like these. Even those who use a system designed to enforce discipline may be scared off. These are among the most difficult times to stick to the system, despite the fact that this is where the money is made (Almost as difficult are times like last fall, when my system had me selling while holding a substantial amount of cash in the face of euphoria in the markets!).
So, putting faith in the system, I maintained discipline and bought yesterday. Just like I bought near the lows in July and sold near the highs in August. Of course, it doesn't always work out so nicely. I can't guarantee we are near a bottom. If the market is up next month, I'll smile smugly. If it is down, I'll grit my teeth and buy more. After all, the reason my system all but guarantees beating the market is the discipline it imposes at times like these. If you can't pull the trigger at times like these, you are doomed to underperforming the markets, as the vast majority of investors do.