The following is a quote from the book I wrote as I rode my Harley across the heartland of America, contemplating the lessons I learned over 30 years as a money manager:
“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 were spooked by such nonsense, and inclined to adopt a wait and see approach before investing any of your money at all in financial markets when it seemed hopeless, then next time 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?”
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. The key lesson was BUY when everyone is miserable. Eight months after writing the above text (on Feb. 1, 2011) the DJIA had risen by 22%, NASDAQ almost 28%, the S&P 500 by over 24%, and the TSX Index by 21%.
And the news coming out a short 8 months later was the complete opposite – after the markets have recovered significantly. The U.S. manufacturing sector had expanded for the 18th month in a row and at a pace not seen since 2004. And good news was 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 lesson has a flip side. Low interest rates today, great earnings announcements (for last year, 2019) and a stock market that seems so intent on performing well that it is almost oblivious to a potential pandemic and any other indications the global economy is slowing. How much better can it get? SELL.