In the week’s Validea Hot List newsletter, Validea CEO John Reese says that, despite the continuing troubles with the U.S. economy, he sees several clear reasons long-term investors should be high on stocks heading into 2009. “Good investors must have the ability to look past the near-term and see the forest for the trees,” Reese writes. “To me, the forest that is the stock market looks quite inviting right now.” Five reasons for his optimism:
- Stock valuations by just about any standard — even the ultra-conservative 10-year P/E ratio — are at levels we haven’t seen in many years
- The gurus upon whom he bases his Guru Strategy computer models have impressive track records coming off downturns, likely because of their willingness to bargain hunt while others wait on the sidelines
- Pessimism is at or near an all-time high, and history has shown that periods of high pessimism are usually followed by sizable stock gains. Quoting Sir John Templeton, Reese explains, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.
- The government has shown it is willing to take drastic steps to try to stem the financial crisis and get the economy back on track.
- The massive cash injections the feds have made into the financial system are likely to trigger serious inflation at some point, and stocks — not gold — have proven to be the best inflation-beater throughout history.
Reese provides a variety of data to support these contentions, including return statistics from the gurus following bear markets and numbers on the performance of the market following periods of high pessimism. To read the full newsletter, click here.