The following is a quote from the book written last summer as I rode my Harley across the heartland of America, contemplating the lessons I learned over 30 years as a money manager:
(BEGIN QUOTE) I picked two headlines published on June 30, 2010 to illustrate my point.
In one newspaper, under the title Economic Crisis I found the headline: “World recovery under threat as growth slows, stimulus wanes.”
Same day, in another newspaper, under the title Recovery Angst was the similarly ominous caption: “Economic trouble is all investors see.”
If you are spooked by such nonsense, and inclined to adopt a wait and see approach before investing any of your money at all in financial markets, then give your head a shake. These headlines are gold! The maverick in you should begin to wonder: If the press is even partially representative of what economists and strategists are recommending, and if investors all share the same sentiments, then what happens when there’s some good news? (END QUOTE)
The DJIA closed on June 30, 2010 at 9774.02; NASDAQ closed at 2135.18; the S&P 500 at 1041.24 and the TSX at 11,294.42. My book discusses all the lessons I learned over thirty years that I could remember while touring across the United States heartland on my Harley this past summer. The key lesson was buying when everyone is miserable. Since writing the above text, the DJIA has risen roughly (on the day I’m typing this – Feb. 1st, 2011) 22%, NASDAQ almost 28%, the S&P 500 by over 24%, and the TSX Index by 21%.
The news coming out a short 8 months later (i.e. today) is quite the complete opposite – after the markets have recovered significantly. The U.S. manufacturing sector expanded for the 18th month in a row and at a pace not seen since 2004. And good news is becoming evident in Germany (falling unemployment), with manufacturing also expanding in Japan, China, India, Korea, South Africa, Russia, the Czech Republic (a record), Poland, Hungary, Denmark, the Eurozone and the U.K. The question now is can it get any better? For the record, I’m not bearish yet, but the catalyst that will create another ‘buying’ opportunity is rising interest rates. Financial distress in parts of the world economy has provided an offset to economic recovery in order to keep interest rates stabilized globally. There was absolutely NO reason to have a ton of cash in June of 2010 even though everyone did…….but there is good reason today to have some on the side. (While most investors are scrambling to get rid of it of course).