Nate
09-19-2008, 02:36 PM
Recieved this from a friend of a friend financial genious guy...seems sound to me.
"Dear Friends and Fellow Investors:
Please know I am thinking about you during this time and welcome a personal discussion as well. I have sent this message to help you keep things in perspective and offer ideas that could help you actually benefit from these market conditions.
While corrections from the excesses in the credit markets continue to unfold, the broader markets have been dropping along with investor confidence. Is this opportunity or Armageddon? While end-of-world theorists abound, the reality is that scenario is highly unlikely and if it happened money would have no value anyway. If you are concerned about things, that's understandable, but take comfort in knowing that things will turn around as they did after previous bear markets. For those accumulating shares for their future, this situation can actually present a golden opportunity. Nonetheless, worries abound: are we in for another depression? (No) Is America on the economic ropes and going down? (No) I will not get into a detailed discussion on the great depression and how we are in a completely different world and situation now, but in a nutshell the probability of that happening again is highly improbable and not worthy of serving as the basis for any sound financial decisions. Regarding the state of America, we have taken our lumps but are still by far the strongest, most innovative and productive country in the world and have an unprecedented level of influence and confluence on the rest of the world. In essence, the rest of the world has a vested interest in us and our stability. The problems we're seeing out there are finite and digestible. Once we work through this, the world as we know it will go on basically as usual, albeit with ongoing changes and adjustments, as always.
To paraphrase Nick Murray, "...any right minded investor should embrace a bear market..." To paraphrase legendary fund manager Peter Lynch, "Far more money has been lost by those trying to time the market and avoid declines than has been actually lost on market declines". Why is this advice so difficult to heed?
As with the 15 prior bear markets since 1945, the recoveries have been consistent and in many cases dramatic. Although the specifics differ -- in the early 1970s it was the other oil crisis, in the early 1980s it was the soaring inflation and the S&L crisis, in the 90's the Asian contagion crisis... To paraphrase Mr. Murray again, "we have seen this movie many times before and know how it ends" (Namely, with a recovery and ensuing bull market). Such is the nature of market cycles. This is not to say the worst has passed, insofar as market declines and companies being wiped out. We are in the midst of a cleansing process. There are many less obvious reasons to be optimistic and to have faith in the resilience of the systems --- that they will acclimate themselves to the ever-changing realities as they always have. Despite all these problems, our economy has yet to experience a recession although we may see one later this year. Like a tech bubble or credit bubble, a 'fear' bubble can also develop, and at some point the fear pendulum can swing too far. Headlines such as "unemployment jumps by 20%" sounds dramatic until you realize that it only increased by 1%, from 5% to 6%, and on the bright side, 94% have jobs, not to mention those earning income 'under the table'. I just read that 1 out of 36 home loans are in foreclosure, up from 1 in 71 a year ago. While that is a practically a 100% increase, it is still only 2.78% of the loans -- not exactly shocking in the wake of the massive housing froth and credit binge -- and hardly portending a widespread calamity of epic proportions resulting in food lines. The overly aggressive entities are now paying for their excess. This is a healthy and necessary part of the self-correcting nature of the markets. In the case of AIG, the government's intervention to facilitate a more orderly correction process appears to be the logical and sensible move in my opinion, based on the scale and breadth of AIG being so enmeshed in systems and companies throughout the world. AIG has not been given a 'free lunch' nor have they been subsidized by the taxpayers, as the government now holds an 80% ownership stake and will benefit from and share in their recovery as any other shareholder. While this may not be a good trend for the government to own a growing number of formerly public companies, one could argue that we are all in this together and need to help each other out at times.
As with previous bear markets, the present market conditions present opportunities for the calm and calculated investor to capitalize and potentially build wealth in a number of ways. For some reason, the base logic of "buying low and selling high" becomes highly challenging during dark periods for otherwise rational folks. The reasons are many and varied, but basically because, as humans we are heavily influenced by the two counter-productive forces of greed and fear. We also have the tendency to extrapolate current or recent conditions and performances out into the future, however irrational and opposite that logic is and has been as compared to reality over the past. The past has shown us that, the darker it gets the brighter the eventual recovery.
Investing requires a leap of faith, as with pretty much everything in life worth achieving, and entails taking some risks and enduring challenges along the way. There are really no guarantees in life, just probabilities. There is no guarantee the sun will come up tomorrow, but the odds are pretty high that it will. With investing, while we don't know what will happen day to day or year to year, we know that over the long term the odds are highly likely we will see attractive returns on our capital that will help enable our families to live comfortably.
"
Jack Gibbs
"Dear Friends and Fellow Investors:
Please know I am thinking about you during this time and welcome a personal discussion as well. I have sent this message to help you keep things in perspective and offer ideas that could help you actually benefit from these market conditions.
While corrections from the excesses in the credit markets continue to unfold, the broader markets have been dropping along with investor confidence. Is this opportunity or Armageddon? While end-of-world theorists abound, the reality is that scenario is highly unlikely and if it happened money would have no value anyway. If you are concerned about things, that's understandable, but take comfort in knowing that things will turn around as they did after previous bear markets. For those accumulating shares for their future, this situation can actually present a golden opportunity. Nonetheless, worries abound: are we in for another depression? (No) Is America on the economic ropes and going down? (No) I will not get into a detailed discussion on the great depression and how we are in a completely different world and situation now, but in a nutshell the probability of that happening again is highly improbable and not worthy of serving as the basis for any sound financial decisions. Regarding the state of America, we have taken our lumps but are still by far the strongest, most innovative and productive country in the world and have an unprecedented level of influence and confluence on the rest of the world. In essence, the rest of the world has a vested interest in us and our stability. The problems we're seeing out there are finite and digestible. Once we work through this, the world as we know it will go on basically as usual, albeit with ongoing changes and adjustments, as always.
To paraphrase Nick Murray, "...any right minded investor should embrace a bear market..." To paraphrase legendary fund manager Peter Lynch, "Far more money has been lost by those trying to time the market and avoid declines than has been actually lost on market declines". Why is this advice so difficult to heed?
As with the 15 prior bear markets since 1945, the recoveries have been consistent and in many cases dramatic. Although the specifics differ -- in the early 1970s it was the other oil crisis, in the early 1980s it was the soaring inflation and the S&L crisis, in the 90's the Asian contagion crisis... To paraphrase Mr. Murray again, "we have seen this movie many times before and know how it ends" (Namely, with a recovery and ensuing bull market). Such is the nature of market cycles. This is not to say the worst has passed, insofar as market declines and companies being wiped out. We are in the midst of a cleansing process. There are many less obvious reasons to be optimistic and to have faith in the resilience of the systems --- that they will acclimate themselves to the ever-changing realities as they always have. Despite all these problems, our economy has yet to experience a recession although we may see one later this year. Like a tech bubble or credit bubble, a 'fear' bubble can also develop, and at some point the fear pendulum can swing too far. Headlines such as "unemployment jumps by 20%" sounds dramatic until you realize that it only increased by 1%, from 5% to 6%, and on the bright side, 94% have jobs, not to mention those earning income 'under the table'. I just read that 1 out of 36 home loans are in foreclosure, up from 1 in 71 a year ago. While that is a practically a 100% increase, it is still only 2.78% of the loans -- not exactly shocking in the wake of the massive housing froth and credit binge -- and hardly portending a widespread calamity of epic proportions resulting in food lines. The overly aggressive entities are now paying for their excess. This is a healthy and necessary part of the self-correcting nature of the markets. In the case of AIG, the government's intervention to facilitate a more orderly correction process appears to be the logical and sensible move in my opinion, based on the scale and breadth of AIG being so enmeshed in systems and companies throughout the world. AIG has not been given a 'free lunch' nor have they been subsidized by the taxpayers, as the government now holds an 80% ownership stake and will benefit from and share in their recovery as any other shareholder. While this may not be a good trend for the government to own a growing number of formerly public companies, one could argue that we are all in this together and need to help each other out at times.
As with previous bear markets, the present market conditions present opportunities for the calm and calculated investor to capitalize and potentially build wealth in a number of ways. For some reason, the base logic of "buying low and selling high" becomes highly challenging during dark periods for otherwise rational folks. The reasons are many and varied, but basically because, as humans we are heavily influenced by the two counter-productive forces of greed and fear. We also have the tendency to extrapolate current or recent conditions and performances out into the future, however irrational and opposite that logic is and has been as compared to reality over the past. The past has shown us that, the darker it gets the brighter the eventual recovery.
Investing requires a leap of faith, as with pretty much everything in life worth achieving, and entails taking some risks and enduring challenges along the way. There are really no guarantees in life, just probabilities. There is no guarantee the sun will come up tomorrow, but the odds are pretty high that it will. With investing, while we don't know what will happen day to day or year to year, we know that over the long term the odds are highly likely we will see attractive returns on our capital that will help enable our families to live comfortably.
"
Jack Gibbs