Break out the Dramamine, because we're in a market see-saw. October absorbed the full force of the Panic of 2008. The Dow Jones Industrial Average over a 6 day period lost over 20% in market capitalization. However, having said that, the last week of October we experienced a powerful rally, taking the Dow Jones from 8175 to 9625 on Election Day (a 17% rally from the recent bottom). So as of October 31, 2008account valuations will look bad, but recall that just 3 weeks ago it was much worse in terms of market sentiment at the height of the Panic. Fortunately since that already infamous time, the credit "freeze" has thawed considerably, and it "appears" that the market has been creating a range of price support in the Dow 8200 range. This range could drift lower in the next few months (short term), and the market has a great deal of price support in the 7700 range, which we actually visited, albeit briefly, intra-day on October 10.
This will all eventually pass.
By focusing on the long term, and being patient, we will eventually get through this mess, and the markets will eventually recover. For most accounts, where appropriate, recently I raised some cash from assets that I estimate will take longer to recover than U.S.stocks. I will be focusing very selectively and patiently on making purchases in the low 8000 price level on the Dow, during times of pessimism, and raising cash in subsequent Bear market rallies. By doing this, I hope to bring some additive returns to your portfolios on the margins as we look forward over the next (at least) 2 quarters. The next 2 quarters of earnings will be bad, though the trick is realizing that the stock market will eventually look past the short term earnings announcements and begin to look for signs of recovery. This is what the stock market does; it acts as a time machine looking at the future. So eventually, when the gloom and doom looks pervasive, as it did just 3 weeks ago, something will improve.
-ACC
Thursday, November 13, 2008
Volatility Reigns Supreme
We will get through this volatile market. Today the market had its biggest 1-day rally in 75 years. However, the markets have been in a free-fall over the last 4 weeks, with seemingly no end in sight. With all the fear and uncertainty, we have blood in the streets, and we are approaching the point of what Sir John Templeton would call “maximum pessimism”, which traditionally has been a good time to invest (even when we are not sure where the bottom is). Some high quality institutions are trading at less than the cash value on their books. We are all long term investors, even those investors who have just started, or are about to enter, retirement (since the average retirement lasts 20 years). On Friday markets were at a price level last seen in the 2002/2003 time frame. Since we have been in a very technically driven negative environment, in technical terms we have a lot of “price support” between Dow 7500-8500. This was hardly comforting on Friday, and despite today’s rally, we may touch these levels again as the market attempts to create a “bottom”, and we have all become even longer term investors due to this violent price volatility.
In looking through Client accounts, you own strong companies with strong products and services that were purchased attractively, and many of these companies are quite defensive in nature. Most accounts contain huge doses of high quality health care companies, oil drilling, food, tobacco, alcohol, consumer products/staples, since I typically try to diversify “away from” undue risks in trouble areas. Over the years I have been sometimes questioned for being too conservative in the choice of business enterprises in which to invest, though ACC Clients have at least the comfort that the companies invested in have a bright future, despite the short-term swing in prices. Despite this, the spillover effect from the financial companies is what we are currently swimming in. This weekend’s G7 meeting has resulted in a coordinated global effort to prevent large institutions from failing, and to inject capital directly into banks; this is very positive in the sense that it will help to prevent a situation of fewer and fewer counterparties to absorb “counterparty risk”.
One of the Warren Buffett maxims I try to adhere to is: own quality companies where we can sleep at night even if the stock exchange was closed for 5 years. Had I the foresight of hindsight (i.e. crystal ball), we would of course all be sitting in cash in the beginning of September and starting to buy in here with a 5 year outlook. I still continue to make slight changes in portfolios to take advantage of current prices where possible with a long term perspective, and with new cash am slowly building positions. Companies with solid balance sheets and big dividend payments look attractive, since there are many solid companies with dividends of 4-6% right now, which exceeds the yields on Treasury securities by a lot (granted not as “safe” as a Treasury, but still extremely attractive). With all the “flight to quality”, many investors have flocked to money market and Treasury securities; this trade will eventually reverse as equity yields compete with bond yields. Municipal bonds nationwide have had a tough September and October, but are good relative values at this time, especially relative to Treasury securities on a price and yield basis.
All investors, including myself, have been disappointed with the current economic and market situation, and please know that I am here piloting the ship through these troubled waters. I know you have placed your trust in me, and I will continue to do the best job possible in this environment.
-ACC
In looking through Client accounts, you own strong companies with strong products and services that were purchased attractively, and many of these companies are quite defensive in nature. Most accounts contain huge doses of high quality health care companies, oil drilling, food, tobacco, alcohol, consumer products/staples, since I typically try to diversify “away from” undue risks in trouble areas. Over the years I have been sometimes questioned for being too conservative in the choice of business enterprises in which to invest, though ACC Clients have at least the comfort that the companies invested in have a bright future, despite the short-term swing in prices. Despite this, the spillover effect from the financial companies is what we are currently swimming in. This weekend’s G7 meeting has resulted in a coordinated global effort to prevent large institutions from failing, and to inject capital directly into banks; this is very positive in the sense that it will help to prevent a situation of fewer and fewer counterparties to absorb “counterparty risk”.
One of the Warren Buffett maxims I try to adhere to is: own quality companies where we can sleep at night even if the stock exchange was closed for 5 years. Had I the foresight of hindsight (i.e. crystal ball), we would of course all be sitting in cash in the beginning of September and starting to buy in here with a 5 year outlook. I still continue to make slight changes in portfolios to take advantage of current prices where possible with a long term perspective, and with new cash am slowly building positions. Companies with solid balance sheets and big dividend payments look attractive, since there are many solid companies with dividends of 4-6% right now, which exceeds the yields on Treasury securities by a lot (granted not as “safe” as a Treasury, but still extremely attractive). With all the “flight to quality”, many investors have flocked to money market and Treasury securities; this trade will eventually reverse as equity yields compete with bond yields. Municipal bonds nationwide have had a tough September and October, but are good relative values at this time, especially relative to Treasury securities on a price and yield basis.
All investors, including myself, have been disappointed with the current economic and market situation, and please know that I am here piloting the ship through these troubled waters. I know you have placed your trust in me, and I will continue to do the best job possible in this environment.
-ACC
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