If you've been scared away from stocks, new highs in the market might very well tempt you to jump back in. We've tapped the wisdom of proven investors like Buffett and Bogle to help you get in the game.
With the Dow Jones Industrial Average ($INDU) hitting new highs, you might be tempted to jump back into stocks after years of hiding out -- or to buy stocks for the first time ever.
But after all the turmoil we've seen in recent years, you no doubt have some doubts. Should you trust this rally this time? Are you already too late because markets always crash? What stocks, if any, are safe to own?
Well, you're in luck. I've tapped into the wisdom of eight market elders with a collective 480 years of investing wisdom and the battle scars to prove it. These stock market wise guys have learned great lessons from their mistakes, and stuck with the game to post far more wins than losses lately.
Their key message: It's ok to jump in, even now at a high point, as long as you follow some basic rules. They also shared some of their favorite stocks right now, including IBM (IBM), Wells Fargo (WFC), Citigroup (C), Intel (INTC) and eight more.
My wise guys are at least 70, and started investing as early as 1928. So they've seen it all -- enough scams, crashes, and bull and bear markets to make you weep. They didn't let that keep them from making money, and neither should you.
Here are eight key lessons from these market wise guys.
Few market wise guys possess as much sagacity as Warren Buffett. To find the most relevant wisdom from the Oracle of Omaha, I consulted his latest letter to investors in his company, Berkshire Hathaway (BRK.B).
Michael Brush
Buffett's key lesson: Sure there's lingering paranoia about stocks and the economy, but jump in anyway. Just follow a few caveats.
His reasoning: There have been reasons to worry about the U.S. economy for as long as there's been a country. But the economy has kept going, and stocks have followed. It's a big mistake to try to "dance in and out" of the market, says Buffett, who is 82. "American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance," he says.
Those caveats? There will always be pullbacks, so go in with a long-term view of, I'd say, at least 5-10 years, if not Buffett's favorite holding period, which is "forever." I personally would not be surprised at all to see a pullback now, following the strength since last fall, but you never know for sure.
When you buy, stick with high-quality companies with solid management, high profit margins and protective moats that keep competitors out -- all well-known Buffett measures.
Examples? Buffett added to big positions IBM and Wells Fargo last year. Lately Berkshire has been buying DaVita (DVA). As the second-largest dialysis provider in the world and part of a duopoly, DaVita has a protective moat and pricing power, two qualities Buffett likes. It also benefits from increasing obesity and the aging of the population. Both are linked to diabetes and create a rising need for dialysis.
Aside from brazenly defying the odds by still hitting the office at the age of 107, value investor Irving Kahn is a natural maverick in another way. In his first trade, he bet against a copper stock during one of the biggest bull markets in history in 1928. He made money on the bet.
Most newbies prefer the perceived "safety" of joining the crowd. But as Kahn, his early mentor Ben Graham, and most value investors know very well, the big rewards come from being a contrarian. Just be prepared to stay calm, and consider buying more, when a contrarian play inevitably moves against you, advises Kahn.
True to form, Kahn Brothers Group, where Irving Kahn is chairman, owns many contrarian value plays. One is Citigroup. Kahn Brothers bought it below the current price, when the fears about the big banks were higher. But at $47, Citigroup still trades below book value, the theoretical liquidation value of a company. It just passed the government's "stress test" for financial strength and has announced plans to begin buying back stock.
Kahn also likes the New York Times (NYT), a true contrarian play, given the widespread negativity about newspapers. The New York Times has staunched the bleeding in print subscription sales, and its online subscription model holds potential. Plus it has a powerful brand, and a "hidden asset" in the form of an option to buy the half of the office building it leases in New York at about one fourth of its true value. Interestingly, Buffett has been snapping up newspapers across the country for the past 15 months.
It's best to bet on great companies which look cheap because of temporary problems that have alienated investors obsessed with near-term results, says value investing great Marty Whitman, 88, in his most recent letter to shareholders.
In the fourth quarter last year, chip makers Intel and Nvidia (NVDA) both fit the bill, so his fund initiated positions. Both stocks are cheap because of fears about weak PC sales and concerns about the economy.
But Intel is a leader in the chip space, and it sells chips used in servers where data center growth has been driving strong demand. It should benefit from a computer upgrade cycle driven by Windows 8 operating system, and sales of "ultra book" notebook computers. It pays at 4.2% dividend.
NVIDIA is a leader in graphics chips, where demand should stay strong because of ongoing growth in digital content, and computer-assisted design. It is also a play on mobile computing growth because its chips for these devices use the popular power-saving technology. It's financially solid, with $3.7 billion in net cash.
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