After a very satisfying meal at my favorite Asian fusion restaurant, I opened up my fortune cookie with the usual mix of hope and skepticism that dominates my life. Many years on Wall Street has taught me to be skeptical about most things. Being an optimist, so they say, is the key to a long, happy life. Maybe a fortune cookie could bring good luck. Maybe being a hopeful skeptic (oxymoron?), is a good way to cope with the ups and downs of the capital markets.
Despite my penchant for the scientific method and math proofs (I didn’t say I was normal!), I will also occasionally peek at my horoscope in the local newspaper. Generally, I place more weight on things measurable and discernable, but sometimes things just don’t work out like the formulas suggest. I am not suggesting that I ever I select stocks based on fortune cookies, the phase of the moon or tea leaves, but I am willing to consider all reasonable sources for inspiration, motivation and knowledge.
So, what did my fortune cookie say? Thus spake the ancient sage, “The problems of today will be buried by the sand of time.” Is this hopeful or fatalistic? My time in Japan taught me that fatalism is not necessarily negative or hopeless. Often it’s just a broader perspective on the issues at hand.
I think this simple saying contains a grain of important truth. Investors right now are questioning everything they’ve learned over the last few decades. The Wall Street Journal today suggests that many investors are abandoning the “buy and hold” strategy. Many are suggesting that the stock market may never again offer its historical rates of return. According to many, the massive rush into cash marks the end of an era; the stock market will never again attract the average individual investor.
To all this, I say “bah.” Buy and hold never works in a bear market. But it is arguably the best strategy for a bull market. Every time we enter a recession or a bear market, it always 1) feels unique, 2) feels worse the previous one, 3) feels like it will never end and 4) is marked by “experts” telling us that the old ways will never return. I have seen this pattern over and over again in my career.
I recall a research report from the early 1990s by a professional “expert” analyst who stated that the New England commercial real estate market was so over built that no new buildings would be needed for the next 37 years! Of course the late 1990s tech boom made that prediction totally wrong. I suspect that most of the predictions we are hearing now about the U.S. economy and stock market will likely be proven wrong within a few quarters.
What I do know is that there are still many very wonderful companies out there trying to compete and thrive in this challenging environment. The stock prices of many of these wonderful companies appear to be very cheap compared to where they could be in a more normal market and economy. I cannot predict with any accuracy when these stock prices will reflect my measure of intrinsic value, but I truly believe that the potential rewards are well worth the wait. The worse place to be right now is cash. The best place to be (if you have an investment horizon longer than a year or so) is in those stocks I feel are massively undervalued.
And, I don’t think we will have to wait all that long before the sands of time will bury our current batch of problems.
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