>>>1990 was a great year to go long, and stay long, the Market. At
the time, virtually every "expert" predicted that the coming war
in the Persian Gulf would lead either to another standoff like
World War I or a quagmire like Vietnam. Oil would inevitably
skyrocket, making the global economy a replay of the 1970's.
During the decade of the 1980's, there had been massive
leveraging of corporate balance sheets through LBO's, rising
budget and trade deficits pushing up interest rates, anemic
growth in productivity and return on capital, an S&L bailout that
would supposedly cost 1/2 trillion dollars, the emerging markets
of Latin America had been careening from one disaster to another
throughout the decade, a number of major banks and Wall Street
firms had already gone bankrupt, and, the U.S. had lost the
technology race, and global economic pre-eminence, to Japan.
Further, as the 1990's began, Russia was teetering on the brink
of chaos.<<<<
This has some similarities to the idea that low inflation, low interest rates, historically high return on equity, high stock prices, no business cycle, unlimited flow of money into stocks, no risk premiums, historically high cost and return on capital spreads, two times replacement costs, are now a permanent state of affairs. At least that's what all the experts are now saying. Funny how the world changes. I do agree though. I was a heavy heavy buyer of bargains in 1990. The pessemism was ridiculous and unwarranted. That's what created the values.
>And, U.S. banks generally have never been more profitable than in the >1990's.
I bought them then a bargain basement ridiculous prices and sold them at overvalued levels - some at higher prices than they trade at now. I used the proceeds for stocks that are much higher now. If banks keep falling to undervalued levels, I'll buy them again. It is possible to trade from overvalued to undervalued stocks in the same market.
>>Lynch said he didn't know whether in the short term the Dow would
drop a 1,000 points before it rose a 1,000 points. But, he was
confident it would rise 5,000 points before it fell 5,000 points.
The key was the U.S. economy's long term performance. If one
believes the outlook is good for the macro economy over the
coming 20 years, get in the market and stay in. If not, do the
reverse.<<
Peter Lynch also said that if you spend 5 minutes in a year looking at economics, you have wasted 3 minutes.
>>The U.S. is far less dependent on cyclical
industries than most other developed economies.<<
This is true, but I have a concern here. A very substantial percentage of U.S. GDP growth in this business cycle has come from technology, financial services, and retail (especially the first 2.) That is what the reports I have heard read say. These are three of the most notoriously cyclical industries on earth. Much of Technology is experiencing layoffs, losses, overcapacity and worse while things are still great. The downside potential for financial services is all around us. And I don't have to talk about retail and restaurants, you hate them more than I do. In reality, I don't think their cyclical nature has anything to do with their value. I don't care how smooth or choppy the earnings stream is and neither should other investors. They should only care about the present value of it and realize the cyclical nature to avoid paying high multiples of peak earnings.
>>The monetary and fiscal authorities have greater experience, and
fewer structural impediments, for preventing both the deflation
of the 1930's and the inflation of the 1970's than at any prior
time.<<
I wonder if the monetary and fiscal authorities in 30% of the world agree with you. There is such a thing as pushing on a string.
>>A final thought on long term investing: Harry Helmsley was once
asked how he had acquired one of the U.S.'s largest real estate
empires. He replied that he kept buying real estate, and not
selling it. So, eventually, he owned a lot of real estate. The
same could be said of buying common stock through thick and thin.<<
I wonder if Harry ever bought overvalued or very pricey real estate? I bet not. Otherwise he wouldn't be Harry or very rich. |
