Thursday, March 26, 2009

Signs That Mr. Market Is Offering Great Prices

Thanks to what he calls an easy but effective investment approach, Derek Foster retired at age 34. He wrote two books, Stop Working and The Lazy Investor, which extolled the virtues of investing for the long term. In those books, Foster suggests buying great businesses that pay dividends and holding them forever: "Remember selling stocks, like divorce, comes at a high cost."

Foster is also active on the web, further educating users on his methodology, as he wrote this in 2005:

Stock market crashes generally don't affect dividend payments for the kinds of investments I own, so I welcome a market crash with open arms! It simply won't affect my retirement.

So Foster must be salivating at current stock prices, right? Or at the very least, surely he's sticking to his investment philosophy? Actually, Foster has decided to completely liquidate his portfolio! In a stark demonstration of how market psychology can dramatically alter sound, logical behaviour, Foster has completely reversed course.

Foster is now quoted as saying that this economy is going through a paradigm shift, and he does not want to hold stocks through that period. But in the very same interview, he states that this is just a 'temporary thing', and that his absolute goal is to get back into stocks.

It is precisely this type of psychological effect that stock market crashes have on investors, which allows value investors to buy companies at terrific prices!


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optionsnut said...

This is nice to come back and read. I quite enjoyed reading about him at the time.

Its funny how close your comments came to the bottom of the market.

A very impressive bit of luck or perhaps foresight.