October 10, 2008
Dear Clients and Friends,
As we endure these trying times in the midst of financial upheaval, and as the
stock and fixed income markets continue to decline and questions arise about the
health of financial systems around the world, we thought it appropriate to send
a brief summary of our current ideas. We write this knowing that you are feeling
stress as you look at your accounts and read or hear press reports that are
negative and note how poorly the economy is performing.
It is amazing that money market funds needed to issue statements asking
investors for confidence and that the Federal Deposit Insurance Corporation had
to set up a website for individuals explaining insurance coverage (
www.myfdicinsurance.gov ). In
addition, the federal government (i.e., the taxpayers) had to rescue banks,
mortgage entities and insurance companies. It is stunning to see that at the
close on October 9, 2008 the S&P 500 index was down 41.9% from its high reached
in October 2007 and down 29.1% from the beginning of September, just 6 weeks
ago. Alan Greenspan noted that this crisis was a “once in one hundred year
event” and a guest on CNBC noted that these events proved that “the unthinkable
is now thinkable.”
Many clients and friends have recently asked about any changes in our investment
approach and whether this is a time to invest further or to move into cash. We
have kept our long-term philosophy and believe that the companies and the fixed
income holdings in the portfolio are excellent investments that have been caught
in these trying economic times. Assuming that you have a similar long-term
philosophy, and can tolerate potential, and hopefully only, temporary losses,
this has the potential to be a wonderful time to invest. We think the portfolios
remain balanced with both common stocks and fixed income vehicles. “I think, but
don’t promise, things will get better. This very well could be a great time to
be invested, and we have money balanced in fixed income for deployment.” is an
excerpt from a recent note to a friend/client.
“Be fearful when others are greedy and greedy when others are fearful” is one of
our favorite investment philosophies. That statement was made by Warren Buffett.
We were heartened to hear Mr. Buffett speaking last week and noting that he
thinks we may look back in five or ten years and not believe the great bargains
currently available. He also indicated that he could not be sure that there
would not be greater bargains next month or six months from now and no one could
tell you when the bottom was going to occur. As you may have read, he recently
invested $3 billion in General Electric and $5 billion in Goldman Sachs.
In his book, Super Money, ‘Adam Smith’ noted that among the things Warren
Buffett wrote to his partners each year was that he could not promise results.
He could promise that investments were chosen on the basis of value and not
popularity and that he attempted to keep the risk of permanent capital loss (not
short-term “quotational” loss) to a minimum.
We continue to research and read. We are seeing individual stocks trade at
extremely low levels and we think the current situation is presenting investors
with a tremendous opportunity to invest in great companies. We agree with Seth
Klarman, a well-respected value investor, who recently noted that as the market
descends there will be tempting opportunities and an investor needs to sort out
the true bargains from the value impostors. He said that many investors look to
pull out of the market and wait for a clear signal of change but it is critical
to remind your clients, investment team and, as often as necessary, yourself
that only the investment process and approach can be controlled. Understand that
you cannot control or forecast the short-term vagaries of the stock market.
Invest in what you believe and what your research dictates. Notes to the
conference we recently listened to can be located on our website (http://rbcpa.com/2008_10_02.html).
It seems as if logical thinking has been thrown to the side and fear has
overtaken the financial markets. John Bogle, the former chairman of Vanguard,
referred to the current environment as the end of speculation. It is at these
times when it is important to focus on the fundamentals and look at the present
opportunities. Historically, the best time to buy is when most have given up.
We encourage you to view the links below as they are reflective of our views.
This first is a link of Vanguard’s John Bogle speaking recently:
http://link.brightcove.com/services/link/bcpid1185162163/bctid1828663350
http://rbcpa.com/wisdomgreatinvestors.pdf
As always, we are available to discuss your concerns.
Very truly yours,
REDFIELD, BLONSKY & CO., LLC
Ronald R. Redfield, CPA, PFS
John O’Shaughnessy, CPA
Partner