TEXT OF INTERVIEW
Tess Vigeland: And now we'd like to bring in someone you might call a professional investor. He's been in the business for years and a very familiar name to anyone in personal finance. Knight Kiplinger, editor in chief of Kiplinger's Magazine, welcome to the program.
Knight Kiplinger: Good to be with you, Tess.
Vigeland: You've just heard our "Here's What I'm Doing" and I wonder: are IndyMac, WaMu, Fannie Mae, any of those calling to you?
Kiplinger: No, they're not calling to me. They called to me a few years ago and I actually own shares, but they don't call to me now because I'm not a stock speculator. And the gentlemen we just heard is going to have a lot of fun and if he's having fun with a small amount of his money, that's good. But he didn't describe an investment plan and I'm all about creating a long-term investment plan, a game plan, and sticking to it, which means you keep buying through slumps like this.
Vigeland: Well, let's talk about your recent column for your magazine which is titled "Why I Am Buying Stocks." This is not something that a lot of people are doing. In fact, they are dumping all over the place. Why are you buying stocks?
Kiplingr: First of all, the title is "Why I Am Buying Stocks Now," but we could have left off the word "now" and the more important point is why have I continued to buy stocks every month throughout this dismal bear market and the reason is any time I can buy the dynamism of the American economy, American business, at a 40 percent discount I'm interested. It's the same reason people hit the stores at 6 a.m. on the Friday after Thanksgiving to buy great merchandise at 50 oercent off. I'm bargain shopping. Does that mean that prices might not go lower? Yes, they might, but if you buy on the fear and the panic of others who are dumping quality stocks, if you can buy these at a significant discount from a year ago, why wouldn't you want to?
Vigeland: Well, how exactly are you doing that? How are you judging what is a buying day when the economy, especially the stock market, is on a pogo stick of sorts. One day it's way down, one day it's way up. How are you making the decision when exactly to buy?
Kiplinger: In my 401(k), I max out every month and that money is deployed in the same mix of assets that it was two years ago: stocks, bonds. So I am averaging down my cost basis in good stocks that I already owned and buying some that I didn't previously own. I could focus entirely on the so-called consumer staples, the companies that make things that people continue to buy in good times or bad -- household products, personal hygiene, things like that -- but instead, I'm using Total Market Index funds. I'm buying a sliver of over 3,000 publiccally-traded companies in America because I don't know which sector is going to have its day in the sunshine and its day in the doghouse so I want to own a piece of all of those. And so far in this dismal fall, the stocks I bought after these big drops are ahead and this is what you have to do. The foundations of future fortunes are made in bear markets.
Vigeland: But when we talk about taking... I mean any time you buy into the market, you're taking some sort of risk. How much of this advice is based on when you're going to need to take the money out?
Kiplinger: That's a great question, Tess. I've always said that any money for which you have foreseeable no need in the next three to five years should never be in stocks in the first place. I love the asset allocation advice of John Bogle, the founder of Vanguard Investments. John Bogle says that your percentage of bonds should equal your age. So a 60-year-old investor should be 60 percent in bonds at all times and only 40 percent in equities. Conversely, the 30-year-old can be 70 percent in equities because he has a longer time horizon to let the dynamism of the American economy make money for him or her.
Vigeland: When you look out at that horizon, I think the question that a lot of people are flummoxed by is when is this finally going to recover? Now I know you don't have a crystal ball, but is there any way to look at, say, average recoveries from recessions, from stock market declines, and say, you should begin to see some benefit to buying into this down market at at x point?
Kiplinger: Yes. Traditionally stock markets begin to move upwards while a recession is still officially underway. I would expect that this recession is going to look pretty bad through most of 2009, but some time in the middle of 2009 or in the fall of 2009, investors are going to say, "I think the worst is behind us" and you're going to see a lot of serious money moving back into the market.
Vigeland: Well, you've made me feel much better than I have in probably the last two or three months, Knight.
Kiplinger: Well, if you're patient about this... and remember, I'm not giving market timing advice here to run out and load up for a six-month gain. I'm just buying on the fears of others. I'm buying the broad U.S. economy. These are good companies that are going to come back strong. But in the mean time, the dividend helps you bide your time.
Vigeland: Well, thanks for bringing us at least a little bit of a ray of sunshine.
Kiplinger: You're very welcome, Tess.
Vigeland: Knight Kiplinger is the editor in chief of Kiplinger's Magazine and the Kiplinger Letter and kiplinger.com. His column "Why I Am Buying Stocks Now" is in the current issue of Kiplinger's Magazine.