Rational Advisor

One of the sad things that have happened to investments over the last decade is the tendendancy of a growing number of investors to be trend followers., buying on upward momentum, without any regard to valuations (eg late 1990’s - techs, 2006 - Oils and energy), and then selling when stocks are falling, again regardless of valuations (summer of 2002, and now). What this does is create a scenario where markets overshoot on the upside and downside.

And that’s the reality of now. And it doesn’t matter how you were correlated, becasue when sanity leaves the markets for stupidity to enter. All correlations and asset allocations designed to insulate investors don’t help.

I’ve watched in dismay as solid companies, with great balance sheets, lots of cash, and sound businesses get decimated and increasing number of investors run to cash, as if that’s going to earn a better return in the future.

One thing I’ve learnt through going through so many gyrations in the markets in the past, is that every one feels like the worst ever at the time. The market crash of 1982, when I came to Canada, had a recession to it, and stocks fell like no tomorrow, in 1987, it felt like the end of the world in one day!, the S&L Crisis of 1990’s was when we faced the multiple threats of government uselessness, and a looming war with Iraq, as well as more than 1,000 bank failures, and then the late 1990s when we had the Asian Flu, and finally the ground shaking tech wreck of 2000. Each of them was supposed to be the show stopper. The it’s-never-been-like-this-one.

But as we all know, that these events were exceptional times to move out of cash and into stocks that had good businesses.

So, is this what we are going through worse than those in the past. will the markets come back from this mess. Will the markets be stronger?

Just a few months ago the media was feasting on, nay egging on “High Oil prices”, with some analyst saying $200 Barrel, and more… It was the Oil peak scenario, we’ll never see it come down again… And just like idiots we believed them.

Now, the media has fcused on “economic distress”. Of course, the emdia will spin all this stuff into another reason why we are headed for a modern-day end-of-the-world..

What the media doesn’t focus on is the good news
- the non-financial corporations record amounts of cash
- the low non-financiasl corporate debt level compared to the last two recessions
- Or that the GDP per capita in “bankrupt” USA is the highest in teh world, 35% greater than Germany
- and other good stuff!

No, that would make people see the real side of the world. That would make people happy! And happiness doesn’t sell Ads, only misery does.

So, just be careful who’s telling you what. Realize that there are good companies out there.

And there are good people out there, and we’ll get through this calamity as well.

Rational

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