Posts Tagged Investment Philosophy

It´s almost comical to watch the herd of high profile Wall Street pundits get elated when only a week ago they were predicting doom. Today´s comments sound like this “With our global economists believing that this economic recovery is sustainable, we expect the current growth scare associated with this correction will pass,” or “Global economic growth, low interest rates, a “more robust” financial system and oil below $70 a barrel will help lift the U.K.’s FTSE 100 Index to 5,800 by the end of this year.” Or, “There’s a feeling that although there are issues out there, the sell-off has been overdone.” Or, “It’s been pretty brutal recently and the general expectation is that we should see things bounce from these levels, at least in the short term.” Or “I’m an optimist.  The economic fundamentals are rather better than some suspect and that’s certainly coming through in terms of the corporate earnings numbers. Companies are demonstrating better profits than many people had dared anticipate.”

The reality is the same concerns the markets had last week are there now as Daniel Knuchel at AAM states, “The gains in the U.S. yesterday are helping sentiment but the questions remains how sustainable it is? We’ve seen a good technical rebound this week that may last for a few more days buy I expect the market to remain vulnerable. Fears over the debt level in Europe and how it will affect growth haven’t disappeared.” It´s also amusing to observe the love-hate relationship with mining stocks and commodities in general. China Aluminum Corp for example felt the pain of the ol Washington DC cliche, “one minute you are the toast of the town, the next minute your toast.” I always joke, “If you love a stock at 30, why don´t you love it even more at 20″. Anyway, you get the point. Steady we go. Stick to the plan.   Buy the volatility when it dips below your average price per share.  The companies are solid. The big macroeconomic picture is indeed stable, especially for emerging markets.  Let´s just consider this market correction our version of basic training. It toughened us up and gave us more resolve.

The Utopians Are On The Other Side Of The Street

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The exit strategies for governments that have been fueling economies with easy money and low interest rates in order to jump start growth are struggling to find a way out…the surgery is over but now the patient is addicted to pain killers. It seems like the reckoning day is getting closer and it´s causing a lot of commentary and concern. For example, concern that loans made in last year’s record 9.59 trillion yuan ($1.4 trillion) credit boom may go bad. The dilemna is that continuing low rate expectations imply a weak economy. The markets are still getting it both ways; counting on record-low interest rates and a V shaped recovery. The concern is that if we can´t have it both ways, then something has to give. Thus, a correction and perhaps a serious one. The flip side is that investors don´t want to sit on the sidelines while markets, especially emerging markets, roar ahead. A lot of CR Investment Advisors clients have purchased shares in the last few months after they have already risen 50 or 100% or more (year on year), but the majority of their portfolios are liquid in cash. This is appropriate. We are steadily stepping into markets while being prepared for a correction. The correction, if it comes, is an excellent opportunity to buy and lower our average price per share. In other words, we are walking with purpose and caution. That´s good investing.

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As Johnny Says, "Keep Walking!"

Investing is a science and an art. It takes patience and wisdom. We counsel our clients to actively confront the emotions of greed and fear because they make one a bad investor. We can’t get too happy when the ride is up or too sad when the chips are down. Think long term and set your expectations for solid capital appreciation level returns over 3 to 10 years. That’s what we are looking for, neither exhilaration nor desperation. That’s true investing!

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