Folks – it’s ugly out there right now. Not just from a market standpoint, but from a global economic standpoint. We put together a nine-page report for investors that are scared, confused, or not sure how to understand or navigate this mess.
It is being sent to our clients today via e-mail (about half have received it), and is now available for download as well. You can download it for free here (no registration required).
Feel free to pass the report or link on.
Here’s what I had said in the e-mail as I sent out the report:
To my friends, family, clients, and others:
Attached is a 9-page report about understanding, saving in, and investing for the global economic crisis. It’s really bad out there right now; and, it’s likely to get much worse before it gets better. If you are having a hard time figuring out what to do right now, this report should help. Excuse the typos, if any. I felt the timeliness and depth of the content was the critical part. As I write this e-mail, the Dow Jones Industrial Average hit a daily low of 7,882.51 – a level first achieved by the Dow on July 21, 1997. In addition to losing nearly 50% over the past year, many people have lost 11 years of saving and investing.
This isn’t your standard “stay the course” strategy that many investment advisors and talking heads are promoting. Instead, this report should help you understand the problems and its implications going forward. Feel free to pass it on to others, or let them know they can download it for free from http://www.meridgroup.com/blog/7.htm.
Now is the time to look for permanent holdings; but, keep a watchful eye on the situation as it unravels.
Let me pull one line out of the report that is of critical importance as you consider your strategy going forward:
[P]ortfolios must be managed in a dynamic way so that they are not reactive to the markets, but carefully planned for the future.
On a broad market and economic scale, the future looks bleak for the next few years; so, forget reacting to what has happened and carefully plan your portfolio for the future, even if that means taking losses now.
Filed under: Economics & History
So what do you do if your whole portfolio has what you think are solid companies but everything’s gone down 20-50%? How do you decide what to sell to raise cash? Say I have JNJ, but now it’s well below where I bought it? Isn’t it better to just hold on if you don’t have to sell?
Jack
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Rene,
It’s nice to see there are still “investors” out there that aren’t scared #$%less and running for the hills. Jack, do yourself a favor and don’t sell anything unless it is to raise cash and buy a better business at a better valuation. My portfolio is up 5% today after being down around 7% or so. Some stocks that I bought earlier in the day are up 10%. I am glad I didn’t sell everything and run for the hills as even “value investors” are suggesting. The economic crisis report totally blew my mind. I have the utmost respect for Joe and the teachings on this website, but that report contradicted all of them. What happened to ignoring the markets foolishness? The market is pricing businesses as if they are all going bankrupt tomorrow. I don’t think so, I will take the blue light special. Thank you mr. market.
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Yeah, exactly, Ty! If Mr. Market exists now and then, you’d be buying good companies that are selling below their intrinsic value / book value / historical valuations / NPV / NAV. This selling is forced liquidation–fundamentals be damned. It seems people are ascribing projections now based on the forced or panic selling, and that is feeding into the hysteria. So, if you believe in the fundamentals of the company you have are sound–then wouldn’t it make sense to hold on? Why publish an alarmist report–now?? I thought this site was about fundamental security analysis…then again one of the latest posts was about buying Apple! Come on, guys!
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I want to make sure that visitors don’t miss the point of this report. Nothing has changed in my view of individual companies, my valuation methods, or my practice of buying assets and cash flows on the cheap.
I’ve said it a million times — most people should not be (and should not have been) in the markets. Right now, people are panicking and confused as to what they should do. If you are a non-conventional buyer of assets and cash flows on the cheap, nothing changes. But, if you are not (and most people are not), the report should help clarify things.
Many of our clients are not “non-conventional” investors — they are regular people that want growth, but are scared of 50% drops in their portfolios. This report is not an “alarmist” report as Jack suggests; rather, it explains the uncertainty in the markets and economy over the next few years and offers insight into making an intelligent decision as to whether or not people should hold market correlated assets as this mess unfolds.
A non-conventional portfolio of stocks and workouts is not “market correlated” most of the time; but, many visitors to this site come looking for intelligent investment and allocation help knowing that they are not entirely non-conventional.
For certain accounts, we ended up as net buyers of stocks this week. For other accounts, we were net sellers and hoarders of cash over the past year.
To paraphrase a line in the report: Don’t react to the markets; position your portfolio for safety and a satisfactory return that will allow you to sleep at night.
This site is for every investor, and we should recognize that certain posts are for the 100% committed non-conventionalist, and some posts are “no bull” thoughts for the other 99% of investors. (For example, I’ve posted a number of times on 401(k) plans, mutual funds, the economy, etc. Most of those topics do not apply to the non-conventional business investor, but spark thoughtful discussions nonetheless.)
(almost) Finally, let me say this: This is a time when most people reconsider their strategies. I posted this report knowing that many investors think they are gung-ho stock investors…until the markets crash. It’s time for a reality check. If you believe that Mr. Market is depressed, buy stocks. If — like most people — you feel like Mr. Market is killing your portfolio, like you were duped by Wall Street, and like we’re on a slippery slope to zero, you should very seriously reconsider your strategy.
Finally…this site has grown beyond my wildest dreams. What started as a website to support an upcoming book (Adams Media, 2009) grew into a community of non-conventional investors. From there, it grew into a “no bull, no nonsense” website for practical and intelligent investment discussions — not in the posts, but in the comments that you all post.
All I can do is post information that will hopefully spark intelligent conversation in the comments. If you read the report and decide to remain a net buyer of stocks, then this report was not for you in the first place. Instead, it’s for the other 3.5 million visitors that will come to this site this year looking for a little free, no bull guidance and insight. Me? I’m a net buyer. But that doesn’t mean you (or everyone) should or shouldn’t be.
The report is not an “alarmist” one; rather, it explains to our clients why we hoarded cash and sold equity mutual funds and stocks over the last year. And I thought it might be an interesting read for some.
I hope that clarifies my intentions with this report and today’s post.
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Joe – I’m a bit confused. Are you saying that the “fwallstreet investment strategy hasn’t changed at all? Stocks like AAPL, AEO, JNJ, NTRI, etc…are these all screaming buys now? Or are you just holding these stocks because you don’t want to take the loss? It would be great if you revisit your “F Wall Street Investment Performance” post in light of the recent credit crisis.
As always…great blog!
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I just finished reading the report. I agree with everything in it…as of six months ago. I wrote a comment a while back where I disapproved of the AEO purchase and some other ideas and said true bargains would be available later in the year. I sheepishly acknowledged that I guessed that made me one of those loser market timers, but I actually moved money from my S&P 500 Index Fund to my bond fund. I won’t pretend that I foresaw the magnitude of the meltdown and certainly not the speed, but basically I saw it coming and frankly, I was puzzled why everyone else didn’t seem to. I thought it would be less and that it would take about a year.
Obviously I’m one of the “non-conventional” investors. I’m even encouraging my kids to start or increase their cost-averaging plans. I’m not only not “panicked”, I’ve been looking forward to this environment. Yes, I feel bad for those people who have lost “11 years of savings”, but as Joe says, they should never have been in stocks. WB said “If you can’t stand to see your stocks go down 50%, you shouldn’t be in equities” or something to that effect. He also said “Be fearful when others are greedy and greedy when others are fearful”. Now we will see who walks the walk and not just talk the talk. Like WB, I am certain that the U.S. will be better in ten years and better in twenty years than in ten years from now. Look outside the U.S., as bad as we have it, just about everyone else has it worse. We still have all the tools and the rest of the world only has some of the tools even as they have been learning.
If I had a million to invest today, I would not put it in all at once at this point. There is huge risk out there right now. Therefore, I don’t need a million dollars, I just need what I have, the ability to buy a good company for cheap 100-300 shares at a time every couple of months. As far as I’m concerned, it’s poaching season!
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Not to sound like every other Buffett fan out there, but be greedy when others are fearful.
Hey Joe, are you going to continue with Phil Fisher’s 15 Points to Look For in a Common Stock? I loved the current examples of his principles. It helped put a classic book into perspective.
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I posted this on my blog, and felt it might make sense to write it up here as well…
When there is fear it can lead to panic. Panic causes things to go from bad to worse.
Which means that on occasion the recent bargain which you thought was a bargain slips another 30-40%-50% or even more. (I mentioned about this on my earlier blog post, where I suggested one takes one%u2019s time before investing, I feel it needs a little more elaboration, with regards to Joe’s report, so here goes.)
Having said the above, if one looks at the current crisis, it seems different compared to other crisis, as a lot of businesses and people who depend on debt are going to find the going extremely tough. Even business without debt are going to have a difficult time as people might not spend as much, and so Joe making the general report for the benefit of all, where he says it might make sense for the conventional investor to get out of the market and stay in cash and fixed income investments is justified.
I welcome even more panic which would lead to a crash that just means things will get better faster. On the other hand the solutions to this current crisis might cause a prolonged crash and will not solve things immediately (1-3 yrs). However, these steps or new ones in time will restore confidence. The question is how much time?
Depending on where you are in terms of age, the impact of this time can be a dangerous situation for most people. Take 4 sets of differently aged people and the impact of time due to the current crisis will become obvious:
Set 1: 30-40 yrs-%u2013Set 2: 40 – 50 yrs-%u2013Set 3: 50 – 60 yrs-%u2013Set 4: 60 yrs
For each set, assuming they are investing in the markets now, below are probable impacts depending on the time this crisis lasts.
Crisis time period 10 years (i.e market starts to revive after 10 yrs):
Set 1: They can thrive; they have a number of working/investing years left
Set 2: They can still make it, though their fortunes would be late in life.
Set 3: Slim chance
Set 4: They are fuc#$
Crisis time period 5-10 years: (Market starts reviving sometime between 5-10 yrs)
Set 1: They can thrive, they have a number of working/investing years left
Set 2: They can still make it
Set 3: Slim chance
Set 4: Very Slim chance, mostly fuc#$
Crisis time period < 5 years (market revives within 5 years), most people should be ok%u2026%u2026%u2026
When you consider the time factor your investment perspective will change. This is the challenge which most individuals need to figure out for themselves as it will be different for different people. I gave time as a dimension to consider; another important one is how much can you afford to invest considering that time is unknown, considering your job, your family and other liabilities. You are each bound to reach different conclusions, just as each individual would value a company for investment differently. Even though you might have a huge margin of safety, fear could cause that stock price to drop another 30% from the current discounted price or it might not. You need to be sure you can stomach that chance and that the company you%u2019re investing in is a good value in both good and bad times. And ya the bad times can get real bad right now….
Happy Investing 
Sanjay Shetty
I blog at http://indiainvestor.word...
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Excellent post Sanjay, I completely agree. My kids are in a much better position than I am because they have the most precious resource right now, time. Other factors are also very important, such as how secure is your job or business and how wise you are in managing what in the poker world is called your bankroll.
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Hey Dan – if you’re holding the f wall street portfolio, buying what and when joe says to buy, and waiting for him to tell you what to do, you should reconsider your strategy. I’m cutting Joe some slack here because he obviously does more that what he reveals here. (graham corporation, moving his clients to cash over the past weeks and months like he said in the report)
Curious, though, about the performance, it looks like f wall street’s portfolio is down about 5% or so (from $100,000 to about $95,000 – I’ve been tracking it in Yahoo. sorry Joe 
if he never made a change. I assume he has opinions about these companies but I doubt he’s rethinking his methodology or basic strategy. I think that’s what he meant.
Personally, I moved to bonds and cash after I read Joe’s Stocks Stink! article in February. This stuff fascinates me, but I realize I am not the next Warren Buffett. I don’t know if you were being curious, joking, or rude, but if I were still a stock market investor during the worst market drop in history, I’d take Joe’s 5% loss over some overpaid fund manager’s 40% loss any day and I bet his actual clients that pay him to do this stuff did better than all of us reading this site for free.
My two cents (and thanks to Joe, I still have them!)
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Great Report! It accurately describes the cause and the situation we are in. I agreed the global economy and financial system as we know it is in trouble. Yes, more companies will go bankrupt in the future. I’m in the “non-conventional” camp. I try to price things rather than time things. I’m a net buyer right now even if the market goes down another 30-40%. Times are good if you moved into a larger cash position before the downturn. When the market hit it’s all time high back in Oct 2007, I began selling equities and moving into cash.
My question is if you were fully invested (which I think a lot of “regular” investors were) during the beginning of this crisis, what do you do now? It’s been a really tough question for me to answer. Do I tell them to sell at a 40% loss?
This crisis will take many years to unwind. Most Americans have most to all of their net worth tied to their house or their investments. When you take a -30% hit on your house value and -40% hit on your investment AND you are highly leveraged from home equity loans, credit cards, etc, you have a big hole to dig out of. Everyone from individuals to companies to banks to governments have to deleverage, this process will take years.
With that said, I still think these are opportune times to be an investor. Good Hunting!
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Hi Joe:
Thank you very much for your report. You’ve done a very good job evaluating conditions, etc., but I wanted to try to help you (by sharing the resources linked below in this comment) with two points.
First – according to this article analyzing actual public data, there is not actually a “credit crisis.”
A. http://www.lewrockwell.co...
B. http://www.independent.or...
Second – in your allocation of blame, you omitted the most culpable party of all – the U.S. Federal Reserve. The government’s expansion of the money supply causes bubbles (and contraction of the money supply pops them).
A. http://www.lewrockwell.co...
B. http://research.stlouisfe...
I recommend including reference to central bank monetary policy in both your analysis of markets and your advice to clients.
Thanks again for a great and wise report and a great and valuable website.
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I actually bought a stock yesterday. I like looking at it because it’s only down 12% so far and comparatively speaking it’s a winner for me…sigh.
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