It's OK to wait for new bull market

NEW YORK -- Investors can make a fortune from a recession by buying stocks when they hit bottom. But since there's no way to time the bottom perfectly, the big question now is whether it's smarter to dive into stocks a little early — or wait until a clear uptrend is evident.

It turns out that it is often "better to be late than early" to a new bull, according to a Merrill Lynch analysis of stock performance in the six months before and after 10 market troughs over the last 50 years.

The study found that, on average, investors with either cash or long-term Treasury bonds posted better returns if they invested in stocks six months after the bottom was in as opposed to six months before.

"Patience is a virtue," says Richard Bernstein, Merrill's chief investment strategist.

That contradicts the conventional wisdom that investors should get in early to ensure they are fully invested when stocks rebound. Gains, of course, are biggest during the first year of a new bull market.

Many Wall Street analysts say that stock prices are close to hitting bottom, and investors should get ready to jump — or else risk missing the turn.

"When the market turns, the last thing you want to be doing is sitting things out," says Gary Kaltbaum of investment firm Kaltbaum & Associates.

For example, the Dow rallied 93.9% in less than two months after July 1932 when it hit bottom from an 89.2% plunge.

Kaltbaum's advice: Look for signs of a new bull, such as an expanding list of stocks hitting new 52-week highs, and move into stocks gradually.

Merrill's analysis found, though, that investors who joined the bull market party six months late were able to post better returns because they avoided the steep stock losses in the six months leading up to the market bottom.

Investors who bought stocks six months before market bottoms since 1957 would have enjoyed an average gain of just 22.9% two years later, vs. a gain of 26.1% for investors who hid in cash before diving into stocks six months after the trough.