I’ve been feeling so at odds with most of the recent coverage of the stock market but was having trouble clarifying my sentiment.  Associated Press writer Rachel Beck finally helped to put some of my thoughts into words when she asked Are stocks facing ‘Irrational Pessimism?’.

To me, that’s an excellent way to describe the current situation. Why is it that so many of us continue to repeat the mistakes of the past? The market is in dismal shape, but isn’t that exactly what we should be hoping for as investors?  Lower prices now means that our gains will be even greater when the recovery eventually comes.  I’m not asserting that we’ve reached a market bottom or that things won’t get a lot worse before they get better.  But I do feel strongly that we’ll look back on current prices and kick ourselves for not buying even more.  That’s why I’m continuing to invest as much as possible.  I said as much when Mrs Micah asked her readers How the Recession Had Changed Their Spending Habits.

Unfortunately, many investors are taking a different approach.  I’ve been reading about people who have recently shifted to gold or cash to ride out the storm.  The trouble with such an approach is that it assumes you’ll be able to get back in just as things start to improve.  Few, if any, average investors can repeatedly time the market successfully.  More likely, they’ll get back in after clear signs of improvement are visible.  By that time, many of the gains will already have been made and the process of buying high and selling low will have begun again.  No, if you want to take full advantage of a recovery, investments must be made before signs of improvement.  A quick test of whether you’ll be able to get back in at the right time is to ask yourself this: “Did you get out of the market at the right time?”  If you answered yes, then you’ve probably been in cash for a long time and likely already started to buy again.  If you answered no, you probably sold more recently and are going to join the recovery too late as well.  Instead of chasing performance by watching lagging indicators, consider positioning yourself ahead of the curve for a change.  For me, that means investing more and more as the market remains where it it or declines further.