Rational Advisor

I know you’re all saying it - the F word

When it comes to this market, the F word is dominating things. There is just too much F going on.

That’s why the markets can’t move up.

By now, hopefully you’ve figured out the Four letter F word is FEAR!

And it’s the Fear that things have changed and the world has stopped being like it was before that has caused investors to not invest.

All of sudden they believe that companies with good balance sheets and good businesses are broken.

What we have is a buyers strike. Buyers are waiting for the sellers to stop, so that they can pick up great businesses at excellent prices. because they know, that these businesses will continue to earn a profit.

For the Fear argument

Let’s assume that this current scenario is worse that the last depression 1929. Let’s assume 25% employment, an increase in interest rates, over 5,000 banks in the US went bankrupt, stock markets fell 80%, a major blah.

By most account the depression lasted from 1929 to 1932 when a new president F. D. Roosevelt came into office and put a bunch of new rules into place. In fact the words he used were

“The only thing we have to fear is fear itself”

Here’s a link to his inaugral address - you’ll find it illuminating reading

http://historymatters.gmu.edu/d/5057/

What happened then was the resumption of lending as people took money out of their mattresses, a resumption of trade. Something that many thought would never happen again, because things had changed so much.

Eventually we triumphed over FEAR.

And that’s why you should not be afraid of the F word.

But let’s say that the downturn is worse than the depression, let’s give it one more years - so four years of blah’s

Now tell me which companies will be surviving after four years - Will it be Wal-mart? Will it be Royal Bank? Will it be Proctor & Gamble? Will it be Unilever? Will it be McDonald’s? Will it be VISA? Will it be Fairfax Financial? Will it be Power Corp of Canada?

The answer is YES to all the above. So why not add to them now, and stop being fearful.

Remember REAL companies pay dividends. Solid companies with mature businesses in near monopolistic situations. People buy stock in these companies FOR the dividends. Any stock price appreciation is a bonus. When companies stop paying dividends, you remove the primary reason to buy the stock. Period. Companies that do not pay appreciable dividends are purchased purely for speculation…that the stock price will go up.

Companies should be actually be priced on the basis of how much money they make. If you are a stockholder, you get a share in the profits. That way the share price has some basis in reality, and is not founded on the behavioral impulses of masses of financially under-educated lemmings hurtling here and there.

It wasn’t just FDR that took on Fear, but also his wife

You gain strength, courage and confidence by every experience in which you
really stop to look fear in the face. You must do the thing you think you cannot
do.
-Elanor Roosevelt

NO. Things aren’t THAT bad. The only thing that is that bad is the amount of FEAR that is pervasive in the investment world.

Once the public becomes desensitized to the words “credit crisis” and realize that nothing has really changed in their world… they will come back to spend dollars on items we all en masse held off of over the last couple of months.

Same way the public started to sadly ignore soldiers dying abroad… dire news on the economic front will fade as CNN (and the likes) look for bigger news to attract an audience.

Everyone is on the fear bandwagon. FEAR + MEDIA = concerted emotion.

the last three months have been a sharp drop off because the above two factors choreographed a freeze in consumption on both consumer and corporate levels.

Once this fear lifts and consumers (that haven’t bit the dust) go back to their programmed behaviour, revenue will start to surprise.

Normal behaviour will return because as fear fades… normal expenditures will leak back into the economy and the SKEW of data will normalize. It will not be GREAT but it will not be DIRE, unless everyone continues to meditate on Fear, Doom and Gloom… however, I’m confident that awareness and rationality will eventually prevail.

Concerted fear has skewed the most recent results but we will swing over to more normalcy albeit not the peak consumption levels of yester-year.

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