Rational Advisor

The markets recently have been focusing on large drops, we are seeing large number of days with indices going down in large increments, and a lot of panic is created by media and focus is attached to the large number of sellers.

Irrational investors jump on the bandwagon, and sell setting up further losses, without understanding what they are selling. Instead, just wanting to not hold onto to good businesses in case the price falls further.

“We don’t want to see further losses” is the constant message. we’ve heard this at every drop in the markets. Only to be followed a year or so later by “Why didn’t I add to the portfolio when prices were lower”.

What you have to realize is that these “stocks” are not just numbers on a screen, they are not just pieces of paper, but real businesses, with real profits, and real revenues providing real jobs to you and me. These are businesses that feed us, and provide us medicines to keep our ailments away.

And these are the businesses that are being sold of, cheaply.

Just remember that whenever someone is selling these businesses, someone also has to be buying. You can’t sell to nobody, you have to sell to someone. And usually its very smart investors, who have patience, and understand that they are buying businesses that will continue to provide future income and consistent income for a very very long time. And they are getting that income flow at a very cheap price.

Yes, someone is buying these investments that people are dumping. So, I care to focus on why they are buying these businesses, rather than focus on why someone wants to dump a sound business.

Just around my home there are new malls being opened, and in each mall, they have a bank, a grocery store and other businesses. These are long term commitments and leases that these businesses have to pay. And they’ll attract capital and investments from the communities that are situated in.

As irrational investors redeem their positions in businesses to add to GICs and cash. Realize that they have to purchase these GICs and cash accounts from - you guessed it banks! And these banks charge you a fee for it. Yes, GIC’s do have a fee, it’s called the spread. So, the more people that move to GICS and cash, the more revenues these banks make.

I prefer to understand what would make a sound investor buy, when all else around them are selling. What do they see.

Here are some of the things they have said to me

- Recessions and bad markets don’t last, but great businesses do.
- We are buying a dollar for sixty cents.
- The masses are the worst investors, that’s why the masses are not the wealthy, so we prefer not to follow the masses.
- We don’t know when it will end, but it will, and it has everytime.
- It may fall further, but that just means that something that is sound and strong is cheaper.
- Big companies will eat smaller weaker companies, they will take their customers and make them theirs. They will improve their processes, they will be stronger businesses in the future for going through today’s events.
- Governments will do anything to keep the economy and jobs around, after all they want to collect taxes. If everyone’s unemployed and businesses go belly up - who’ll pay the taxes.
- We all need food and consumer staples, we all need health care, and a roof over our head, and heat - doesn’t matter what the market does -we all need this stuff.
- If you think the world’s going to end - stop living now! gather all your canned foods, get into a shelter underground. Just let us that believe the world will survive stay in peace - it’ll take more than sub-prime borrowing to kill the world.
- I’m not buying for the next week, next month, I’m buying for the next three years.
- The concensus is mostly wrong, currently they think the worst will happen, and the big surprise will be that things aren’t that bad!
- An unprecedented fall in the market, leads to an unprecedented recovery - when we all wake up and realize that the world is still going on.
- We prefer to see the glass half full, becasue businesses will gather revenues to fill their glasses, and continue to deliver their goods to us.

So, As the masses were selling, who was buying - We were, and we’ll continue to add to sound investments with great balance sheets, strong franchises, good cash flow and dividends.

You can be an pessimist or an optimist. I prefer to see the world for the greatness that is out there.

I’ll see you on the other side of the recovery. Which will definately happen.

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