For the past century, there has been no better place for the average private investor to grow their wealth than the stock market. Even if you had invested at the top of every market cycle to date, you would have made money.
Instead of trying to time the market, staying power and leaving fear behind is the much better choice. And smart investors even add, when markets are on sale. But how do we know when the market bottoms out?
There are great signals to watch for a market bottom:
You can look at the CBOE Volatility Index (VIX) or there is the put-call ratio and the advance-decline ratio, which is a volume indicator for example but my favourite indicator is the CNN Fear & Greed Index. The CNN Fear & Greed Index is a mix of 7 indicators, including the 3 mentioned above.
So, when it’s safe to jump into the market again?
While no one will tell you whether the sell-off is over, you can see the writing on the wall: The end is getting closer every day. The CNN Fear & Greed Index shows a value of 12. This is a clear “starting to buy” signal. Whenever the indocator falls below 20, it was a very reliable indication that the bottom s close and the sell off is over.
It’s time to start buying top quality stocks and add to your portfolio. History shows that you probably will not see much cheaper prices from here. Good companies come back. They always have, and this time will be no different.
Sven Franssen