Good Stock Advice

Sorry, been away a bit the last week. I decided to take up another subscription to Motley Fool's Hidden Gems (amazing publication), and found what I think is perfect advice in the introduction to the newest edition:

Here's a story about the worst investing decision I ever made. It doesn't involve a company that went bankrupt or a dot-com implosion or anything of the sort. No, this story involves a house.

In 1992, I had just graduated from American University and I wanted to buy a house. A friend and I started looking, and we found a place on Logan Circle in northwest Washington, D.C. It was a 1920s Victorian row house, and it was beautiful. Exposed brick, 12-foot ceilings, 4,500 square feet, including a basement apartment that we could rent out to help cover our mortgage.

The price? $230,000. That sound you hear is the collective groan of everyone who knows a blessed thing about D.C. real estate. These days Logan Circle is one of the most prestigious neighborhoods in the city.

But that was 1992. We elected not to buy that house -- not because of the crime or the wino our agent had to rouse from the stoop or the women of the night openly plying their trade. The asking price of the house fully accounted for these elements. No, we elected not to buy the house because we were idiots.

In the 16 intervening years, Washington real estate has done nothing but go up, and no place more so than Logan Circle, where a 700-square-foot efficiency now costs $400,000. Houses like "ours" routinely sell for $4 million and up. Yep.

Those kinds of gains were available to the people who had a little foresight (and luck) and -- here's the real lesson -- were willing to buy when no one else was. That's just as true in the stock market as it is in real estate.

I've been investing for a long time -- since I had a few dollars to rub together. I've seen markets of all sorts and of all kinds of irrationality. I've never seen anything quite like what's going on now. The markets are crazy. Quite simply, they are seized by fear. Heaven help companies in the commodities, financial, real estate, or oil businesses, or ones in emerging markets. Today, the market is making no distinction between good and bad companies. Witness what happened to poor Chipotle (NYSE: CMG-B) on Sept. 12 -- the shares dropped 19% in a single day. It's madness.

Make no mistake -- there are some enormous risks. In the past month alone, we've seen the nationalization of Fannie Mae and Freddie Mac and the take-under of Lehman Brothers, three pillars of the global financial market.

Should you panic? Heck no! Did you already forget my house story? Sure, I lost out when I didn't buy a house at the absolute low of the market. But the players in my tale of woe who really lost are the sellers. They held the deed to a house that would have made them extremely wealthy, and they sold it in despair. It's now, when the market is in despair, that you have the best opportunity to make great decisions, the ones that will make you wealthy down the road.