Stock market dip: Now is a good time to buy and get your financial plan in place, advisers say

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By Russell Hubbard and Steve Jordon / World-Herald staff writers

Concern over a possible global economic slowdown led investors big and small to sell stocks Monday, raising fears about the staying power of the market’s post-Great Recession rally.

At one point early Monday, the Dow Jones Industrial Average had fallen by as much as 1,089 points. By the end of trading, the stock market benchmark had dropped 3.6 percent, or 588.40 points, to close at 15,871.35. The Standard & Poor’s 500 Index fell 3.9 percent on the day, marking an 11 percent decline from the record high it achieved in May.

That fall puts the S&P index into “correction” territory in Wall Street speak. That’s defined as a drop of 10 percent or more from a recent peak. The last correction for the index came four years ago. The Dow on Friday already had dipped into correction territory.

Still, proponents of so-called value investing — or buying temporarily down-and-out stocks on the cheap — said the sell-off created buying opportunities among valuable companies that are now suddenly cheaper. The value style of investing is popular in Omaha because of the success of hometown investing guru Warren Buffett, who espouses such a philosophy in his Berkshire Hathaway Inc.

Above all, said local money managers, don’t panic in the wake of the stock sell-off.

“Short-term price movements are always painful, but you can use it as a buying opportunity and make sure your financial plan is in place and your financial goals will be met in the long run,” said Clint Rushing, a vice president with Smith Hayes Investments of Omaha, which manages about $2 billion in investments.

“I don’t think you should use a market correction to change your investment philosophy,” he said.

Over time — through wars, recessions, interest-rate changes, natural disasters and civil strife worldwide — U.S. stocks have been a solid investment, money managers say. Over the past 10 years, the Standard & Poor’s 500 index of widely held stocks has earned an average annual investor return of 9.4 percent, according to research by New York University’s business school.

Lately, though, U.S. stocks have gotten a case of the chills. Why? “It’s all about China,” Rushing said.

China’s stock market has fallen sharply in recent weeks, including an 8.5 percent dive Monday. China is logging sharply slower economic growth: In 2007, the country registered 14.2 percent growth, according to the Organization for Economic Co-operation and Development. In 2015, it could log growth of just 6.8 percent, the OECD forecasts.

(And even that might be too rosy; some investors don’t consider the Chinese government’s statistics to be reliable.)

With the world’s second-largest economy facing challenges, a drop in U.S. stock prices has followed. That’s not because U.S. companies are less valuable than they were a week ago, Rushing said, but because some traders and investors bought into the idea that the Chinese trigger would cause a general correction in U.S. stock prices.

Monday’s plunge followed a steep decline Friday and a sell-off on foreign stock exchanges. Big Omaha-area companies fell with all the rest:

» Berkshire Hathaway was down 3.2 percent.

» Union Pacific fell 4.4 percent.

» ConAgra Foods dropped 3.5 percent.

» Valmont Industries dipped 2.6 percent.

» Werner Enterprises slipped 2.1 percent

Brett Carson, research director at Omaha’s Carson Wealth, which has about $6 billion of assets under management and advisement, said that despite the stocks’ strong performance since they bottomed out in March 2009 as the economy inched forward from the depths of the Great Recession, some investors still are spooked by the financial crisis.

“Undoubtedly, some are concerned about a global slowdown or even a possible recession,” Carson said. “The bottom line is that the remnants of the financial crisis are still lingering for many investors, causing them to be particularly risk-averse.”

It has been 40 months since the Dow average has had a correction. George Morgan, a finance instructor at the University of Nebraska at Omaha, said people should remember that market gains over the past four years have been good — and sometimes exceptional.

The Dow Industrials dropped 15 percent between February and September 2011, but otherwise, their climb has been steady since they hit bottom in March 2009.

“When that happens, the market gets a little ahead of itself,” Morgan said. “There’s no real fundamental reason for it to do what it’s doing. It’s just natural.”

With prices for U.S. stocks dropping across the board, Morgan said, this would be a good time for most investors to move money into mutual funds that simply track the overall stock market versus trying to pick individual winners and losers. Most people with 401(k) retirement funds can make that switch.

But whatever you do, Morgan said, continue contributing to retirement funds that contain stocks and, if possible, increase the amount being invested because stocks are “cheaper” than they were just a week ago.

“You’re buying at reduced prices,” Morgan said. “If you can increase your allocation of cash into stocks, I certainly would.”

Ted Bridges, principal at Omaha investment adviser Bridges Investment Management, said bargains are out there. He cited Walt Disney Co. and Omaha’s Union Pacific Corp., the largest U.S. railroad by 2014 operating revenue, as good buys.

“Both are down 25 percent to 30 percent over the past month, and both will likely grow their business values at least 10 percent annually over the next decade,” said Bridges, who manages about $1.2 billion. “So this sharp downdraft does create opportunities.”

Bridges said he doesn’t think stocks are done falling, with more tumult expected from the intersection of U.S. and overseas equities, commodities and economies.

Stock-market “bottoms are impossible to predict, but what we learned in 2007 through 2009 is that capital markets are highly inter-connected and correlated, especially during times of stress,” Bridges said.

Investors sought investments on Monday seen as safer than stocks, with the yield on the benchmark 10-year U.S. government Treasury note falling below 2 percent for the first time since April.

Meanwhile, oil prices fell Monday on scenarios of global economic weakness, with U.S. benchmark crude down 5.5 percent, to $38.24 a barrel, the first settlement below $40 a barrel since February 2009.

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