September markets are volatile, but this September’s markets are crazy. Down 2% Friday, up 2% Monday, down another 1.5% on Tuesday. The reasons are faulty. Why should Alphabet Inc (NASDAQ:GOOGL), Regeneron Pharmaceuticals Inc (NASDAQ:REGN) and even Berkshire Hathaway Inc. (NYSE:BRK.B) be down because oil fell?
That’s bad for oil stocks … but it’s actually good for everyone else.
A lot of the commentary has gone off the rails as well. Chart-watchers are predicting a 25% plunge in the Dow Jones Industrial Average?
Uh, no.
If you’re a gambler you can short Tesla Motors Inc. (NASDAQ:TSLA) at $196, because of its SolarCity Corp. (NASDAQ:SCTY) buy, as Jim Chanos advises. But I’m not a gambler.
A Stock Picker’s Market
You can make an argument that stocks are fully priced, as Goldman Sachs analyst David Kostin is doing. Too many analysts are bullish, he thinks, so the next move must be down.
Maybe, but not that far down. Kostin’s own target is for a 1.7% drop in the S&P 500, which would leave it up “only” 2.7% for the year. That’s still better than a 30-year bond.
Nervousness over nothing, like the November election, which is actually less uncertain than any election in 20 years, is a buying opportunity. When good companies are getting pounded, as Regeneron is, it is time to seriously consider it.
That’s why you shouldn’t read warnings like Kostin’s as an excuse to stay out of the market, or to stop paying attention. Savvy investors aren’t buying the averages — they’re buying and selling individual stocks.
Volatility is your friend when your favorite stocks fall without good reason.
Good Companies on Sale
Take Amazon.com, Inc. (NASDAQ:AMZN), for instance. Its present price-to-earnings multiple of 190 is actually down a third from earlier this year. Earnings momentum is picking up, revenue is still up 30% year-over-year, and Christmas is coming. If scaredy-cats want to dump it, as they did yesterday, that’s a buying opportunity.
Or take Starbucks Corporation (NASDAQ:SBUX). It’s down over 10% for the year, on slowing year-over-year growth. But the company hasn’t forgotten how to make money. Profits remain 15% of sales, and they keep trying things, like brunch. I like brunch.
I’m not saying you’re going to make a fortune by picking up a Wal-Mart Stores, Inc. (NYSE:WMT) at a P/E of 15 or nibbling on General Electric Company (NYSE:GE) under 30. But three years from now, five years from now, you’re almost always going to have solid returns in stocks that are forward-looking, that are honestly run and that are trying things.
Bear Market in Common Sense
What is really in bearish territory right now is common sense. What we’re most bullish on right now is scaring each other.
It’s true there will be another recession, some day. But stocks even recovered from the 2008 crash. They will recover whatever happens next.
Always have a buy list handy for panic, and always try to keep some cash in reserve for opportunities. Then use your own intuition about where change is taking place and scoop up some bargains when everyone else is panicking.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN, GE, GOOGL and SBUX.
