Is it time to get back into the stock market?

Many investors continue to sit on the sidelines waiting for the stock market to hit bottom. Others, such as value investor guru Warren Buffett, have gone on a spending spree. Buffett sat on cash for years while the Dow shot up to over 14,000. He thought everything was overpriced. Today he's ready to buy. He's famous for the quote, you "want to be greedy when others are fearful and fearful when others are greedy." Right now he's being very greedy.

I too think we're seeing bottom basement prices and have some great opportunities, but how does one find those gems? Doesn't it seem like everything looks too risky? Possibly. We may not be at the bottom, but no one can successfully time the market consistently. Some can make good guesses, but don't count on them being right all the time.

You do need to be ready to accept the fact that stock prices may fall further, but as long as you invest with money you won't need for two to three years, you're likely to catch the wave of recovery when it comes.

So what should you look for in a bargain basement buy? The number one thing to consider is a company's cash position. Cash is king in this environment. You only want to consider companies that have enough cash to survive what will definitely be a bad year in 2009. Next you should look at a company's debt position. If the company has a lot of cash but is drowning in debt as well, there is a greater risk that the company won't make it.

Then you should consider PE. In most cases, it's best to look for a PE below 10. When we are in a more stable economic environment PE's of 15 are standard, in this market even a PE that high could be a sign that people are paying too much for the company. Most value investors won't look at a company with a PE over 10.

Generally I start by looking at what value investor gurus are buying. There is a website GuruFocus that tracks the portfolios of key gurus, such as Warren Buffett and George Soros. This will give you a good idea of the industries and companies these stock picking gurus are adding to their portfolios. Be careful though, stocks do tend to get bid up when reports first leak out about a guru purchase, so put the stock on a watch list and wait for prices to settle down.

Also, look for industries that you personally understand. You don't want to invest in an industry that you don't know anything about. That's what got a lot of investors (and many companies) in trouble -- especially when it came to valuing derivatives. If you follow Warren Buffett, you've heard him say many times that he won't touch a company in an industry he doesn't understand.

So where did Warren Buffett put his billions lately? He bought $3 billion worth of stock in General Electric (NYSE: GE). He also purchased about 19.9 million shares of Constellation Energy Group (NYSE: CEG) and 8.7 million shares of Nalco (NYSE: NLC). Another industry he likes is railroads. In the last few years he's been buying up shares of Burlington Northern (NYSE: BNI) and now has amassed over 70 million shares.

Lita Epstein has written more than 25 books including the recently published book the "Complete Idiot's Guide to Value Investing.

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