Saturday, November 18th, 2017

Should I be calm or panic?

October 3, 2011 by  
Filed under Investor Behaviour

A client asked me how panicky my clients are with the current economic situation.  I was struck by the question since I do not feel any panic nor are clients bombarding me with queries indicating panic or any sort.  Here was my reply.

I don’t think my clients are panicky at all.

I hope they have all learned that panic serves them very poorly and that a rational portfolio chosen to match the client’s time horizon, invested in a carefully chosen set of solid businesses, maintained by full time professional money managers will serve them well over time.

I think they know by now that reacting to short term news is a game for speculators and not investors, and almost always turns out to be a losing proposition.

I observe that the current world problems are centered on the irrationality of governments and worry about government debt rather than the solidity of businesses.

I observe that the prices of many of the world’s greatest businesses are at very significant discounts to their long term average and their intrinsic value.

I observe that the great money managers I know are busy strengthening their fund portfolios, if possible, to take advantage of the panic of the speculators.

I observe that Warren Buffett has been buying in a fashion similar to your money managers and for the same reasons.

I do not know when the prices of the great businesses will return to their long term average, but I believe it will happen and know it usually happens when the speculators least expect it, so they are left behind trying to make up for yet another mistake.

When others are acting irrationally, the rational response is to think about ways to take advantage of their poor decision making.  That is what I am doing.  That is what your money managers and Warren Buffett are doing.  That is what I advise you to do.  If possible, add to your equity investments.  If not, live your life knowing this too shall pass, and that when it does the share price of great businesses  will again be higher than they were and go on to levels never seen before.

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