I absolutely agree with marginmike...a bear market has been playing out for some time in the Russell 2000, which is now down almost 6% for the year. So what?
Does any here remember when Saddam Hussein invaded Kuwait? Do you remember the doomsayers talking about global apocalypse and $100 per barrel oil? Do you remember the market tanking unmercifully for three months? At the time, it seemed that the best investment alternative was to stuff money in a coffee can and hide it under a rock. Well, as we all know, Desert Storm blew over remarkably quickly and stock prices began recovering the day the military conflagration actually began. Whether we were smart or just plain lucky, the bottom line is that during this period I didn't spend very much time worrying about Saddam or Iraq or Desert Storm...I just stayed focused on the companies that we owned and the companies that we wanted to own. The market's indiscriminant selling created lots of "gold in the street" and we were able to buy really nice companies for thirty and forty cents on the dollar of intrinsic value. Many of the investment decisions made during this period have driven our performance throughout the ensuing bull market. Fast foward to today.
Asia really looks ugly and reasonable, highly intelligent people are concerned that we face a global meltdown. There is hyperbole, and a little blood, running in the street. However, let's put things into a little perspective. South Korea's GNP is expected to decline by 5% this year--a bad recession, but not the end of the universe--meanwhile, the country is awash in foreign currency reserves ($40bb+), it just paid off $3bb in IMF loans early, and the won has recovered pretty dramatically (easing the burden on companies with dollar denominated debt). Japan's economy took a real hit in the first quarter, and the second quarter doesn't look much better...so there is a chance that its GNP could be down almost 5% this year. Again, pretty terrible...but not the end of the world. People sometimes forget that Japan is one very rich country and also is the world's largest creditor. It is my experience that it often takes a crisis for a big, rich company (and I mean company) to finally roll up its sleeves and fix its problems. Just look at IBM....Akers had damn near run the company into the toilet...people were actually talking about the possibility of bankruptcy...but the crisis was the catalyst for renewal and change. I believe that Japan's crisis will also be such a catalyst; the country is too rich, with too many fundamental strengths, to simply sink into the Pacific under the weight of its banking crisis. I do not claim to know how...just like I didn't foresee a Lou Gerstner...but I can recognize the pattern. Big, rich, powerful economic entities do not go quietly into the night.
The world is a scary place right now. But, the U.S. economy is in terrific shape and that will buffer us (and our markets) from a significant amount of the pain. Corrections and bear markets are NECESSARY to eliminate excesses and chase the "stupids" out of the market--that is--anyone who owns Yahoo :-) . Focus on what you own, how its valued, why its undervalued if you believe that it is, why its business will continue to improve and whether or not management is capable of navigating treacherous waters. Do not focus on what the Dow Jones Industrial Average does tomorrow. End of rant.
Best regards,
Gregg |
