Email Featured

Long-Term Investors Have Been Waiting For This Sell-Off

Vahan Janjigian, Ph.D., CFA | On October 17, 2014

A trader works on the floor of the New York Stock Exchange.
(Photo by Spencer Platt / Getty Images)

Ebola, ISIS, Europe, China, Russia, retail sales, manufacturing. Take your pick. Wednesday’s sell-off in the market is being blamed on all of them. But it doesn’t really matter what you blame it on. The bottom line is that the sell-off in stocks is just a return to normal.

It is normal to see the market sell off by about 10% every 18 months or so; but it has been three years since the last time that happened. It is normal for stocks to exhibit volatility; but volatility has been almost nonexistent since 2011.

Long-term investors should welcome sell-offs like Wednesday’s. This doesn’t mean stocks won’t go lower before they go higher. But if you’re investing for the next 5-10 years (rather than for the next day or two) sell-offs often represent good buying opportunities. That’s why you should always have some cash available so you can take advantage of sell-offs. And you should always make sure that you have a proper allocation to different asset classes and that you are properly diversified within asset classes. Also, don’t forget to rebalance your portfolio from time to time.

And here’s something else to consider. The 10-year Treasury bond now yields less than 2%. There are many stocks that pay dividends higher than that! In other words, you are guaranteed to make almost no money in bonds. With stocks, you stand the chance for capital appreciation over the long run and you can get paid a decent amount while you wait.

Here are few of my favorites right now: Verizon (VZ) yields close to 5%. It should benefit for quite some time from the roll out of new iPhones. McDonald’s (MCD) has a yield that is close to 4%. The stock is depressed due to troubles in China and Russia, but those will eventually pass. Intel (INTC) just announced outstanding earnings, yet sold off on the news. It yields 3%. Given the low yield on bonds, I’d rather put new money to work in stocks like these.

Read Vahan’s blog at Janjig.com.

Vahan Janjigian, Ph.D., CFA

Vahan Janjigian is Chief Investment Officer at Greenwich Wealth Management, LLC, a SEC Registered Investment Adviser, where he manages portfolios for clients in separate accounts. Dr. Janjigian is a former Forbes magazine columnist and former Editor of the Forbes Special Situation Survey. According to Hulbert Interactive, his stock picks returned more than 18% annually during one of the market’s worst 10-year periods.

Dr. Janjigian holds the Chartered Financial Analyst designation and has earned degrees in general sciences and finance from Villanova University and Virginia Polytechnic Institute and State University (Virginia Tech). He previously served on the faculties of several universities, including the University of Delaware, Northeastern University, the American University of Armenia, and Boston College, where he taught courses in corporate finance, financial theory, investments, accounting, and economics; and he currently teaches a seminar on equity investment management to business executives in Singapore through Baruch College’s Zicklin School of Business. Dr. Janjigian has served as an expert witness on matters involving portfolio management, churning, suitability, and hedge fund manager compensation.

Dr. Janjigian has published his research in numerous scholarly and professional journals; and has been quoted in many leading newspapers and magazines, including Barron’s, Forbes, The Wall Street Journal, and USA Today. He appears as a guest commentator on various television and radio networks, including Fox, CNBC, MSNBC, and CBS Radio. Dr. Janjigian is the author of Even Buffett Isn’t Perfect (published by Penguin) and co-author of The Forbes/CFA Institute Investment Course (published by Wiley).