Ben Stein How Not to Ruin Your Life

Roughly 10 days ago, just as the latest war in the Middle East was starting, I participated in a panel on a major cable TV network (not Fox) talking about whether it was a good time to buy stocks.

Most of the panelists said it was a bad time to buy. They said there was a lot of uncertainty in the market about inflation. Likewise, there was extreme concern about how high the Fed would raise interest rates.

If rates continued to go up, the stock market (so these people said) would be devastated by fears of higher bond rates, thus pulling buying away from stocks, and by the prospect of an economic slowdown.

(The real reason stocks react poorly to interest rate hikes -- the effect of lowering the net present value of a stream of earnings -- was never mentioned, although it's a worthy concern.)

Plus, there was worry that the war in the Mideast would hinder the transport of oil, raise its price, and spread to a wider conflagration. For all of these reasons, said the seers on the panel, stocks were low, and now was a bad time to buy.

Buy at the Bottom

"But," I thought as I sat in my little seat, my head reeling, "this makes no sense at all."

In fact, their advice was precisely opposite to the truth: The exact time to buy is when stocks are low -- when there's fear in the market and sellers are flocking to sell.

That's when you get the same stock -- or the same basket of stocks if, like me, you buy and/or hold ETFs or mutual funds and variable annuities -- with the same long-term prospects at a bargain price. When everyone else hates the XYZ Widget Company because of rockets flying over Israel and Lebanon, it's still the same company, but you get it at a discount.

Eventually, the fear will go out of the market. Economic conditions will right themselves. There will be a ceasefire in the Middle East (alas, probably only a temporary one) and stocks will rally. It may take awhile, but it always happens. And then the buying opportunity is nowhere near as good.

Pay Attention to Loud Noises

You can make money buying when stocks are high, for sure, if you hold them for a long time. But you'll definitely make more money if you buy when they're low. Remember: "Buy on the sound of the cannon. Sell on the sound of the trumpets."

(So, supposedly, claimed Mayer Rothschild, the famed 19th-century English financier, although no one can find any record of his having actually said it. It's still valid and wisely quoted by my pal, TV commentator and economist Larry Kudlow.)

The bad times -- when price/earnings ratios, price to book, or price to dividends are low -- are the right times to buy. My colleague, money manager Phil DeMuth of Conservative Wealth Management, did some extensive research on the subject. He found that if you bought at the precise low points of all of the post-World War II recessions and held the stocks for 10 years, you made almost exactly 100 percent gain (assuming you bought the S&P 500).

If, on the other hand, you bought at the peak of economic activity in the business cycles, you made about 75 percent gain after 10 years. This is a major difference -- a one-third improvement for disregarding the doom and gloom and plunging in to buy when clouds were gathered over Wall Street.

Granted, maybe it's different now. Maybe this time there will be global nuclear war and we'll all die. But if that happens, we won't need our stocks anyway. Barring such a worldwide disaster, though, the market will recover and we'll be glad we bought when prices were low.

Buy on the cannon, sell on the trumpets. Better yet, keep on buying until you retire and need the money.

Peace of Mind is a Hot Commodity

Finally, a note for the CFAs, CFPs, stockbrokers, sellers of variable annuities, and mutual fund salespeople who read this column:

You're not hurting people when you call them up or send them letters asking them to make sensible, carefully chosen, prudent investments. You're not wasting people's time when you urge them to prepare for retirement instead of letting them put it off for another day.

You're doing them a major favor by helping them with an often unsettling but always necessary task -- preparing for economic security and, by so preparing them, taking the fear out of their future.

You're helping them just as much as if you'd told them to eat more fruits and vegetables or get more exercise or quit smoking or get regular checkups from their doctors. You're helping them as much as if you'd told them to get a good night's sleep. When you sell, you're selling safety and two of Franklin D. Roosevelt's greatest goals: freedom from fear and freedom from want.

When you sell a good product at a fair price that takes the terror out of growing old, you're doing everyone a service. Be proud of doing it, and know that you're doing it for the customers' good. It is no shame to sell peace of mind.