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Originally Posted by BMW F22
I figured if stocks are now half of what they were pre-covid, then why not buy?
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Because, when companies fess up about the negative effects that the Fed's rate rises are having/will continue to have on their businesses, they might get cut in half again?
Seriously, it's all about price/earnings (P/E) ratios. They've come down quite a bit because prices (the numerator in that ratio) have dropped. But they are still pretty high by historical standards (aka "the mean"). P/E's will jump back up if earnings (the denominator) decrease, which is likely. That will drive stock prices down again in order to bring the P/E ratio back to the mean. Downward earnings revisions are coming, so more pain is likely ahead.
Quote:
Originally Posted by BMW F22
At some point it will at least go back to that level. Perhaps not the crazy high levels we’ve seen with covid, but they should still go back up. How long it takes is anyone’s guess.
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If you're speaking of quality companies that have "real" businesses, likely that's true. Remember, though, if a stock drops by 50%, it has to rise by 100% to get back to even. And, how long will that take and with your money tied up waiting to get back to even, what opportunity cost does that have? Could you have been making gains somewhere else while those stocks spend months/years treading water?
As they say, "thar be dragons". Be careful out there.