One of the best times for buying both these categories of winning stocks is after there has been a market drop. More bargains are available, and their potential is greater. Of course, to do so then can be difficult, since most people are selling and one may wonder if the stocks might just keep going down. To date, however, in every historical case when patient U.S. buyers have invested at such times in our low priced assets, they have been rewarded for the apparently extra risks they have taken.
An extra plus for the hedging of stocks with other equities, in lieu of substantial holdings in bonds or money market reserves, might be dismissed as just a matter of personal style, but in fact can be substantial. A typical investor, averaging 40% in money market funds or bonds and 60% in stocks, might optimistically expect an average annual return on his or her money of around 7% or less, given the current state of things. Were that person to "make do" with liquid non-equities of only 10% of the total, putting the 30% difference into low risk stocks that balance the higher volatility of low price to book value securities, the annual return on the overall nest egg, if rebalanced periodically, could well be 10% or higher. A 3% advantage over a 40-year investing career can be huge. $10,000 invested for 40 years at 7% (if, for simplicity, in a tax-deferred account and with all redemptions, dividends, and capital gains reinvested in the account) becomes $149,750. The same initial investment at 10% becomes $453,000. Which would you prefer?