A trap or a buying opportunity?

Q: I’ve heard it’s good to invest regularly in stocks. But some stocks I’m thinking of buying are down by 35% to 65% now. Do I buy into those, or stay away from them? Is it a trap? — S.P., Riverside, California A: Assuming you’ve researched the companies and believe that they have very promising futures, what you’re looking at is not a trap — it’s a glorious buying opportunity!

The stock market has fallen sharply in recent months (as it does every few years or so), taking many solid businesses’ stocks down with it. Market volatility is to be expected if you’re going to invest in stocks, and it can present great entry prices to stocks you’d like to own.

The key is being a longterm investor. Not every stock will bounce back from a fall, but if you buy intending to hold for at least five years, if not 10 or 20, and you’ve bought a healthy and growing company, then it’s likely to recover from its drop (perhaps in a few months and possibly in a few years) and go on to hit new highs.

Reading up on investing

Few of us are taught much about investing in school, and yet most of us may face rocky retirements if we don’t save and invest for our futures. Here are some good books that can teach you stock market — and more:

“The Little Book of Common Sense Investing” by John C. Bogle (Wiley, $25), founder of the Vanguard Group and known to many as the father of index funds.

This book offers a good grounding in basic investing concepts and considerations, such as dividends and taxes, and covers mutual funds and index funds well.

“One Up on Wall Street” by Peter Lynch (Simon & Schuster, $19).

Peter Lynch, a former mutual fund manager, has one of the best investing records and writes in a very easy-to-understand manner. The book, first published in 1989, became a classic, and covers how to find promising companies in which to invest. Lynch has suggested that “any normal person using the customary 3% of the brain can pick stocks just as well (as), if not better (than,) the average Wall Street analyst.” He has also said: “Know what you own, and know why you own it.”

“The Intelligent Investor” by Benjamin Graham (Harper Business, $26).

First published in 1949, this is not light reading, but super investor Warren Buffett has called it “by far the best book about investing ever written.” (Benjamin Graham was his mentor.) Chapter 20 is a good place to learn about “margin of safety,” a critical investing concept to understand.

“The Essays of Warren Buffett: Lessons for Corporate America, Fifth Edition” by Lawrence Cunningham (Carolina Academic Press, $35). Through these essays, Buffett offers what some have called a “master class” on business and investing.

“Money Masters of Our Time” by John Train (Harper Business, $16). This is a great way to familiarize yourself with many of the best investors, such as Buffett, John Templeton, Graham and Philip Fisher. The easy-to-read book is packed with anecdotes and important lessons.