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Late Thursday night, having arrived home from work and spent time with what really matters in life, my family, I sat down to watch the business news, do some work-related reading and review the current day’s carnage in the equity market. Ironically, after having read several articles both online and in hard copy, I couldn’t help but chuckle over two things, the first being the extreme level of pessimism out there and the second being the number of adages being used! So, in order to lighten up another dismal week on Wall Street, here are a few.
Evidence of “a watched pot never boils” can be seen in the ratings and revenue generated from advertising on the financial networks. Seems as if investors who couldn’t get enough of counting their money are now tuning back into real life, such as NCAA Basketball or the new episode of “Lost.” By the way, when did all of these reality shows begin to appear? While this may be bad for the business networks, this is good for the mental well-being of investors and good for the financial markets.
Needless to say, we have spoken with many clients over the past few weeks, and more often than not they say that they “wish they had sold all of their stocks a year ago and that maybe they will sell them now.” To that we respond, “why, so a year from now you will be saying that you wish you hadn’t sold a year ago!” We believe that unlike the Japanese economy and stock market, this will not last forever. Unlike Japan, the United States government has taken relatively quick and ultimately overwhelming action both on a monetary and fiscal front to combat this deep recession. This will fuel the rebound in the economy as the inventory correction in the manufacturing sector gets worked off. By the way, the Japanese economy, which has been in recession for nearly two decades, just reported another quarter of zero economic growth.
“There’s a tunnel at the end of the light.” No, that is not a typographical error, but a quote contained within an article illustrating the level of pessimism out there. Pessimism and fear is running rampant leading to a high level of volatility in the markets. Usually, when volatility is high, the market turns. That said, it is important that the major stock indices hold at or around these levels.
“Be patient.” Certainly, we have been using that statement a lot lately. But, it is true. Why is it that when there is a sale at your local grocery store, shoppers flock there like there is no tomorrow. However, when the stock market goes on sale, investors run for the exits. (Stop shouting! We agree that all of these shenanigans on Wall Street doesn’t help and is probably keeping investors away.) Historically, bear markets turn when there is indiscriminate selling of market leaders. Perhaps we are there now. Perhaps we have a little while longer. After all, stock market bottoms are a process and not an event. Regardless, we smell a major sale and are not ignoring it. We are speaking specifically to investors with more than a two year time horizon and not a trader with a two-day time frame.
Enough of the adages! Quite seriously, don’t buy into all of the negativity surrounding the current stock market. Recognize that in a down market you (and we) are going to make mistakes, and plenty of them. What we try to do is to identify those mistakes to learn from them going forward. One of the primary tenets of successful investing is not to beat yourself up over the mistakes, but as mentioned above, learn from them and look forward. Remember, a baseball player in the Hall of Fame only hits successfully thirty percent of the time meaning that he is unsuccessful seventy percent of the time!
This is now the time to look forward and, we believe, to perhaps buy another few shares of a company whose share price was much higher a year ago, but has come down, in part, due to the fear that investors are currently experiencing. Remember, buy low and sell high. Finally, don’t continue to live in the past, but rather concentrate on those stocks that will benefit quickest when the economy turns and you will see that your portfolio will “rise like a Phoenix from the ashes.” Oops, now there we go!