Get Off The Sidelines: Markets Run Up Violently

The Dow finished at 8,083.38 points. It is hard to believe that a couple of weeks ago, the Dow was around the 6,500 mark. This marks a 24% rally from its lows which also brings us to question why people are still on the sidelines.

The best time to invest in the market is when it is continually hitting new lows. Sure it takes nerves of steel to make a purchase while everything is going down, but it ensures that "you are in it to win it". People waiting on the sidelines anticipating a movement back up will always be too late to catch the wave up. The recent rally proves just how quickly and violently the markets can turn around.

However, blindly buying companies is never a good idea. A great way of beating the market and limiting downside is to buy great companies at great prices. By purchasing companies that generate plenty of cash and have great sustainable competitive advantages will help any portfolio in the long run.

The price you pay is also of importance. Paying $2 for a company that is worth $1 is a sure way of losing money. However, with the recent financial turmoil still upon us, there are plenty of companies on sale. That is, companies that are worth $1 are being priced in the market for half price at $0.50. This concept is what we call margin of safety which provides a cushion to the downside.

Submitted by Old School Value. For investment education and free investing spreadsheets and tools, please visit www.oldschoolvalue.com