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Why Great Investors Love This Market

Tracey Ryniec

For the first time in three years, stocks have sold off big, with the Russell 2000, the small cap index, falling over 10% and the Dow Industrials plunging as much as 450 points in one session.

It's been a rocky few weeks that has left investors shaken and on edge.

But that's the thing about stock market corrections. They create buying opportunities.

During bull markets, it's fairly easy to post solid numbers year-after-year in a portfolio. But who is still standing when the stuff hits the fan?

Great Investors Are Made Through Adversity

When market sentiment turns negative, those with the guts to get in are rewarded. Two of the greatest investors in the last 75 years, both value investors, were tested in both bear and bull markets.

Was it always easy? Heck no.

John Templeton, the founder of Templeton mutual funds, was shaped by the stock market of the Great Depression. In the same vein, Warren Buffett made his fame by going on a buying binge during the Super Bear Market of 1972-1974.

Great investors emerge when the going gets tough because that's when the greatest profits can be made.

Do You Have What It Takes?

Looking at the careers of Buffett and Templeton, three criteria for being a great investor emerge:

1) Be a contrarian 2) Timing is everything 3) Patience

More . . .

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Be a Contrarian: Buy When Others Are Not Buying

The classic definition of a value investor is someone who buys companies that are not on everyone else's radar. They are out of favor or, frankly, mocked. Both John Templeton and Buffett are known for being value investors.

John Templeton put himself through college during the Great Depression and then set out to start his career on Wall Street during the worst possible time.

It was the late 1930s and stocks, which had crashed during the Great Depression in 1929, still hadn't fully recovered.

In 1939, with the world going to war, he decided to buck the convention that stocks stunk. He borrowed money to buy 100 shares each of 104 companies that were selling at $1 a share or less.

Some might have thought he was crazy as 34 were in bankruptcy at the time.

But the risk paid off.

Ultimately, only 4 of the companies ended up being worthless and the rest went on to large profits.

Timing is Everything

Warren Buffett hasn't always been 100% invested in stocks.

In 1969, as stocks were heating up, Buffett cashed out of all of his holdings, telling Forbes Magazine in 1974: 'When I got started the bargains were flowing like the Johnstown flood; by 1969 it was like a leaky toilet in Altoona.'

But by 1974, after two years of stock market carnage during the super bear market of 1972 and 1973 which made stocks cheap, Buffett was back in the game.

Forbes asked him what he felt about the markets that year: 'Like an oversexed guy in a harem,' he shot back. 'This is the time to start investing.'

By the time the interview was set to run in the magazine, the markets had rallied 15% and Forbes asked him if he was still feeling the same way.

'I don't know what the averages are going to do next,' he replied, 'but there are still plenty of bargains around.' He told Forbes that the situation reminded him of the early 1950s.

Sound familiar?

Recently, Buffett was back to his predicting ways, telling CNBC on Oct 2, 2014 that he had just bought stocks after they sold off big the day before.

'The more it goes down, the more I like to buy,' he said.

Patience is a Virtue for Great Investors

Patience is also critical to being a great investor because market conditions don't always change on a dime. You have to be prepared to stand by your convictions, which can mean waiting a long time for sentiment to move your way.

Buffett added to his positions in 2009 in the middle of the doom and gloom of the financial crisis and he just added to his positions again this month.

Templeton held his 1939 investments on average for 4 years, despite a World War.

Do You Dare to Be a Great Investor?

Volatile markets are opportunities to elevate your investing game.

The investing lessons of John Templeton and Warren Buffett are there for the taking.

Both were value investors who looked for bargains when times got rocky.

That's exactly the market conditions that we find ourselves in right now. Suddenly, some stocks that were trading at all time highs are down double digits and look attractive again.

But with all the noise from television talking heads and the Internet and with thousands of stocks to choose from, how can you know where to even begin to find the right value stocks?

Finding the Best Value Stocks

Instead of going it alone to find the values, we can do the work for you. We offer a service that combines the most powerful value criteria like the PEG ratio with the timeliness of the Zacks Rank. It's a great way to catch value stocks at the right time - just as the market begins to recognize their real worth. We're not talking about cheap $1 stocks with risky fundamentals, but the kind of extremely undervalued stocks that later soar in price.

This proven strategy outperformed the S&P 500 with an overall gain of +36% in 2013. Our success accelerated in the first and second quarters of this year as the market punished overvalued stocks.

Currently Value Investor includes 24 stocks that are 'on sale' right now and are likely to head a lot higher in the months to come. Even more important, I'm currently tracking undervalued sectors with companies who show solid fundamentals, and today is the perfect time to get aboard at the ground floor for the full ride upward. This is a value service, so I am glad to report that starting today you can receive our best value stocks, plus recommendations from all of Zacks' portfolio services, for a full month at a total cost of just $1.

Learn more about Zacks' Value Investor portfolio >>

Good Investing,

Tracey

Tracey Ryniec is Zacks' Value Stock Strategist and serves as Editor in Charge of Insider Trader and Value Investor.



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