The hubby and I are looking at two stocks. Both stocks have sold off recently (due to the subprime/Bear Stearns messes). One stock has been hit more heavily than the other. There is a possibility there may be more bad news for this stock. This is partially factored into today's price but there would still be a drop upon the announcement. I expect both stocks to eventually recover to their historic p/e's.
So all other things being equal, which one should we buy?
It depends. If we needed the cash in a couple months, neither (too risky). If we needed the cash in a couple years, likely the one without the possibility of more bad news. If we needed the cash in five years (and wait for a drop), we'd lean towards the riskier stock.
You see, time frames matter in investing. They matter A LOT. A good deal for a day trader may not be a good deal for a long term investor. A good deal for a long term investor is usually not a good deal for a day trader. The investments for your emergency fund should not be the same investments for your retirement fund.
That's why I get nervous while watching stock shows with the "expert" tossing out buy, sell or hold recommendations. I also get squirrelly when people say all their money (funds for kiddie education, retirement, a new car) is invested the same way.