With a bear market upon us and volatility continuing this New Year, fears are arising that a recession may be at hand. During such times, I believe it important to gain a perspective from past bear markets and recessions as we develop an investment plan going forward. Reacting to 500 point Dow rallies or tumbles certainly isn't prudent, thus I recommend turning off your televisions and reading books which may give us an historical viewpoint and strategies for surviving such tumultuous periods. Though I unabashedly recommend my recently published book, I also include a list of some books I would highly recommend and which have had the most influence on me.
We don’t currently own Nike; however, this is not due to some patriotic position for or against the company’s recent ad campaign featuring Colin Kaepernick. Instead, it is based upon an unprejudiced review of Nike’s valuation, financials and its paltry 1% dividend payout.
I'm in the only business in which no one wants to purchase something when it is 25% lower in price!
This past week, a client asked the good question of why we would purchase a company such as Mattel which has declined in value and sell or trim our positions in companies which have risen in price - particularly when the company doesn't pay a dividend which is generally at the core of our philosophy and critical to our client's future retirement success. Because this question goes to the core of our investment process, I thought I would share my answer with our friends, clients and investors. My reply email is enclosed as follows:
Today's 1000+ point plunge for the Dow Jones Industrial Average can be attributed primarily to algorithmic, programmed trading. In an absence of any particular news during a trading day, the massive selling (or buying) that occurs during the opening or final hour of a trading day illustrates that a good deal of selling is occurring because of broken technical market levels which triggers further selling and a negative feedback loop. In addition, the massive rise of passive investing in indexes - which are laden with overvalued growth stocks unlike the reasonably priced value-based, dividend stocks we own - is major contributor to the recent sell-off as valuations come back down to earth for such overpriced companies.
Today's 2%+ market sell-off has certainly unnerved some investors. Like any market move in the short-term, it's important to take a deep breath and think about your long term goals as we assess our outlook and strategy. So, has anything changed?