My mistake in calling the bottom

Hello everyone!

Wow, is there a lot of stuff to talk about. It is hard to think of where to begin to start, but I will start by admitting my mistake in having called the bottom of the Dow Jones Industrial Average back in November. As you may know the DJIA has fallen past the low levels seen in November and has fallen to levels not seen for 6 years. Investors the world over are liquidating their equity holdings and putting their monies into cash. The question is whether or not this is prudent. My personal feeling is that it is imprudent to not be buying right now, assuming that you have an investment time horizon longer than 5 years out. If you are looking for a quick buck then right now the volatility will eventually swallow you whole.

Believe it or not, I am no stock market bull. In fact, until recently, I had not bought stocks in 4 years. So why am I buying now? I am buying now because the price levels that we are seeing, in terms of P/E ratios, have not been seen in over a generation. The one question you have to ask yourself is: will the world’s economy continue to exist in the future? Is the catastrophe that we are facing insurmountable and in the category of a: meteor strike, volcanic eruption, Black Plague-laden Medieval Europe, or massive world-wide flood? I think pretty definitively you would all agree that what we are facing isn’t even on par with a global world war. Yes? Now that we have established that there is no imminent physical threat, we need to ask ourselves some more questions.

Above we established one extreme of a continuum, with that continuum being “What is the state of the world right now?” Physically, most of us are fine. So what’s on the other end? The other end of the continuum would be: Candy Friggin‘ Mountain; where everything is wonderful and full of joy and joyness : ) I think that most of you would agree that we are more toward the other end of the continuum, right? But we are not in world war territory. We are in psychological turmoil territory undoubtedly. So, are we in the worst economic situation that the world has ever seen? No. Are we in the worst that this country has ever seen? No. Are we in the worst that are parents have ever seen? No. Is it scary? Yes. Have we all been affected? Yes.

The next point of fact is that all of success in investing boils down to four words. Yup, four words and 14 letters. How is such a thing possible? Here they are: buy low, sell high. Are assets priced cheaply right now? Yes. Do you have confidence that you personally will find a way to do the things you do in life better and more efficiently in the next five years? Do you have faith that in five years that other people will have found ways of doing things in a better, more efficient fashion? Yes. Do you have confidence that in five years businesses will have found ways of doing things better and more efficiently? Yes. Assuming that you could answer “yes” along with me then we have correctly identified that we can currently “buy low” and we have also gained confidence that in five years we can “sell high.”

That’s why I am still buying shares in businesses right now. Will the market go lower? Maybe. But prices right now seem to be reflecting worst-case scenarios, in my opinion. More on this in the next post.

Jason