Of Morons And Markets

Part of what I do for a living involves investing in stocks and bonds.

Over the last few weeks, and months, Ive noticed that markets can be mindless. Long a believer in relatively efficient markets, Im becoming more and more convinced that they would be, if they werent peopled by idiots. I do believe, however, that in the long term (ie not a 24 hour news cycle, or a month, or a quarter, or a year, but rather over actual long terms of say 5-10 years) I think that markets are reflective of the values being traded.


At the current moment, however, the Mr. Market is being an ass.

The economy cannot possibly be as bad as the main stream media is making out, obviously for the benefit of their anointed candidate. This is a cycle thats gone on for a long time; in my lifetime, there has been an alleged recession each time that a Republican (after Reagan) has been running for office. Bush Is recession was illusory; Bush IIs recession in 2004 was also illusory. I believe that we are not in a recession now, although, due to the recent market crash and manipulated oil price shock, we may have a shallow one on our hands over the next couple of quarters. But it will be shallow, and short-lived.

As hedge-funds and massively leveraged investors were forced to unwind their portfolios due to the credit crisis caused by the sub-prime meltdown of Fannie Mae and Freddie Mac, as well as the Federal Reserve failing to rescue Lehman Brothers (which in my opinion will go down in history as the biggest dipshit move the Fed ever made, bar none), we are seeing retail investors start (too late) getting into the selling party.

Folks, Potters not selling, hes buying. A recent op-ed piece by Warren Buffett referenced in this blog earlier tells you all you need to know: Valuations of companies are at an insane level they are on sale to a degree not seen since 1974. If you have any kind of cash, you should do like Buffett, and buy, buy, buy.

If you have a portfolio, make sure its rebalanced, and then hang on for dear life. If you sell out, you are locking in your losses. Let others do that. Every single time theres been a market crash, people with cash, and people who held on (assuming they were diversified into a spectrum of companies and bonds) were rewarded. Every single time. EVERY SINGLE TIME.

One last thought before I head for dinner. Think of it this way:

Lets say you own a house. Youre planning on living in that house for a long time. Lets also say that the real estate market is down, like it was in California in the 90s. Or now, throughout the nation.

You bought your house for $300,000. You look on Zillow, you read the comps. According to Mr. Market, your house is now worth $200,000. Would you sell it now, seeing that its declined in value by a third?Of course you wouldnt.

Because you know that youre going to be living in your house for a long time. And you also know that real estate prices in the long term always go up. Especially in inflationary times.And just as you wouldnt sell your house just because prices are lower at the moment, neither should you sell out of your investments. You dont need to move out of your investment house so dont. Hang on, ignore the day to day news, and just bloody wait.

Let the morons sell to Potter.

By: Henry Jennings

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