Thursday was lovely day in the stock market. The fear is palpable. The Fed whining is deafening. Bernanke doesn't seem to care that much, and maybe he shouldn't. It is not his job to worry about stock market psychology. It is his job to keep the economy afloat and stave off inflation. If easing 100 bp Friday will help accomplish that, then he should do it - but not for any other reason.
That aside, let's tell it like it is. The market is terrified, and who knows how low it can go near term? Value temporarily means nothing. Eventually, value means everything. Don't forget it.
I am not terrified. Yes, my portfolios are declining and I have been losing money. Or have I? I am not selling. I continue to be confident in the long-term prospects of the businesses I own, and their valuations are better than ever, implying less risk of permanent loss.
Take a deep breath, close your eyes, and ask yourself this: "If the market had been closed for the last 3 months, would I be worried about the companies I own? Would I be scared or depressed? If Mr. Market wasn't telling me that I am losing money, would I be worried about it?" If you own quality companies, you should be unconcerned by Mr. Market's manic depression. If you were a private investor in private companies, you would not be thinking about getting out because we might be heading towards (or even already be in) a recession. You would realize that recessions are a fact of life, they average about 10 months long, and then things start looking up. And, you would know you were in it for the long term. You are an INVESTOR.
The flip side here is that if you own companies with questionable long-term prospects, and/or companies with very high valuations, then you should be concerned. It is those situations which lead to permanent loss of capital. See: internet companies and bond guarantors. If you have suspicions about some of your holdings, get out even if they are down a great deal.
It's times like these when it is so important to have confidence in your assessment of your companies' quality and intrinsic value. It is also a good time to refer back to the teachings of Value Investing's equivalent of Yoda, Ben Graham:
The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.
Rejoice - there are literally TONS of good companies out there on sale - once in a decade - or longer - sales. Put 'em in your IRA and forget about them until the next time the market gets frothy.
- More by Todd Kenyon »
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