Which stock funds look cheapest?[SIZE=-1]This may be a once-in-a-lifetime opportunity to buy shares in stock mutual funds, but one well-regarded expert suggests waiting until the craziness subsides.
* Christopher J. Cordaro, a chartered financial analyst and certified financial planner, is chief investment officer for RegentAtlantic in Morristown, N.J., a fee-only money management firm with $1.6 billion in assets. He spoke recently before a group of money managers in Chicago.
* * ?There?s been panic selling,? he says. ?At any bit of good news, the market climbs a few hundred points; at any bit of bad news, it drops a few hundred points. And when investors aren?t being rational, it?s not a good time to put money to work.?
* * Before he starts investing again, he wants the volatility index?the VIX?to remain under 40 for a few days. (It was 68 recently.)
* * But he knows where he will invest: in emerging markets and foreign small-company stocks, via mutual funds. The sectors that have fallen the most tend to rebound the most, he says, and that means emerging markets. The sector that seems most undervalued, based on such criteria as price-earnings ratios and dividend yields, may also rebound robustly?and that means foreign small-company stocks. The two sectors have lost 50 percent of their value.
* * For the first, Cordaro is thinking of the mutual funds Lazard Emerging Markets, DFA Emerging Markets Small Cap, and Vanguard Emerging Markets VIPERs. For the second, DFA International Small Cap Value, DFA International Small Company, and Forward International Small Companies Institutional.
* * Which sector has fallen the least, and therefore seems the least promising? U.S. small caps. ?Even before the decline, they seemed richly valued,? Cordaro says. ?And even now, they are not screaming buys.?
* * His advice to investors in general: Stay fully invested unless you?re in so much pain that lightening up on stocks would be enormously helpful to your emotional health.?Warren Boroson
Guest contributor Warren Boroson is the author of more than 20 books, including ?How to Pick Stocks Like Warren Buffett? (J.K. Lasser).
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