Following on from the market's strong gains in 2013, investors entered 2014 with high hopes regarding what the stock market might have to offer for the year. Instead, they have been faced with fear and uncertainty with the local market yet to deliver a weekly gain, conceding 3.5% of last year's 15% ascent.
In saying that, the market did finish the week strongly on the back of a strong reading on the US labour market which eased concerns over the world's biggest economy. It climbed 61.1 points or 1.2% on Thursday and a further 35.1 points or 0.7% on Friday.
As such, the question on the minds of many investors is whether now is the right time to be buying stocks? Has the market hit its low and is it on the way back up, perhaps to the 6,000 point mark some analysts had forecast? Or should they instead be waiting for another market pullback to buy shares at an even greater discount?
Unfortunately, being able to call the bottom of the market is an impossible task. Many 'investors' have attempted to do so and, while some may have successfully (luckily) "timed the market" on the odd occasion, quite often they will get it wrong.
Take the period between 2012 and 2013 as a perfect example. Investors watched the stock market drop from around the 4,500 point mark down below 4,000 points over a five-week period. It then gradually started to climb and many investors elected to wait for another drop before buying in to recognise what would have been even greater discounts.
That drop never came and the market is now sitting 29.6% higher at 5,166.5 points and some of Australia's most widely held stocks have soared. These include Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), as well as Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES).
To add to the pain of those investors were the generous dividend payments made by these companies which far exceeded the gains that would otherwise have been recognised from bond yields or term deposits.
Foolish takeaway
We Fools don't buy tickers, we buy businesses. We focus on the long-term prospects of a company and ensure we buy them at reasonable prices whereby the difference of a few cents or percentage points doesn't make a difference to our investment cases.
The market may certainly have further to fall – that's anybody's guess – but the fact remains that the stock market will climb over time. By waiting for stocks to fall even further, you are risking missing out on another market rally and that is one of the real risks that many investors take.
