Millions of Americans are reeling from investment losses this year.
For many, the financial cost of the red ink is only part of the misery. They're also kicking themselves for the losses.
Maybe you feel you invested too much. Maybe you feel you should have invested in different assets.
This may prove scant consolation, but it is worth noting: The best of the best have done no better. So go easy on yourself.
This has been Wall Street's year of the fallen idols.
Marty Whitman, the legendary septuagenarian who co-manages Third Avenue Value, has seen crises come and go. There are few you could trust more in a panic. But his fund has almost halved this year. Bill Miller, the famous manager at Legg Mason Value, has fallen by nearly 60%. And that's not even the worst of it. Miller's more flexible, go-anywhere fund, Legg Mason Opportunity Trust, is down by two-thirds since the start of the year.
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Showing posts with label Crisis. Show all posts
Showing posts with label Crisis. Show all posts
Sunday, November 16, 2008
Tuesday, October 14, 2008
Those With a Sense of History May Find It’s Time to Invest
The four most dangerous words for investors are: This time is different.
In 1999, technology companies with no earnings or sales were valued at billions of dollars. But this time was different, investors told themselves. The Internet could not be missed at any price.
They were wrong. In 2000 and 2001 technology stocks plunged, erasing trillions of dollars in wealth.
Now investors have again convinced themselves that this time is different, that the credit crisis will push economies worldwide into the deepest recession since the Depression. Fear runs even deeper today than greed did a decade ago.
But in their panic, investors are ignoring 60 years of history. Since the Depression, governments have become far more aggressive about intervening when credit markets seize up or economies struggle. And those interventions have generally succeeded. The recessions since World War II, while hardly easy, have been far less painful than the Depression.
Now some veteran investors, including G. Kenneth Heebner, a mutual fund manager who has one of the best long-term track records on Wall Street, say that the sell-off has gone much too far and stocks are poised to rally powerfully if the downturn is less severe than investors fear.
Martin J. Whitman, a professional investor for more than 50 years, said that as long as economies worldwide could avoid an outright depression, stocks were amazingly cheap. Mr. Whitman manages the $6 billion Third Avenue Value fund, which returned 10.2 percent annually for the 15 years that ended Sept. 30, almost two percentage points a year better than the S.& P. 500 index. The fund is down 46 percent this year.
“This is the opportunity of a lifetime,” Mr. Whitman said. “The most important securities are being given away.”
Read the full article
In 1999, technology companies with no earnings or sales were valued at billions of dollars. But this time was different, investors told themselves. The Internet could not be missed at any price.
They were wrong. In 2000 and 2001 technology stocks plunged, erasing trillions of dollars in wealth.
Now investors have again convinced themselves that this time is different, that the credit crisis will push economies worldwide into the deepest recession since the Depression. Fear runs even deeper today than greed did a decade ago.
But in their panic, investors are ignoring 60 years of history. Since the Depression, governments have become far more aggressive about intervening when credit markets seize up or economies struggle. And those interventions have generally succeeded. The recessions since World War II, while hardly easy, have been far less painful than the Depression.
Now some veteran investors, including G. Kenneth Heebner, a mutual fund manager who has one of the best long-term track records on Wall Street, say that the sell-off has gone much too far and stocks are poised to rally powerfully if the downturn is less severe than investors fear.
Martin J. Whitman, a professional investor for more than 50 years, said that as long as economies worldwide could avoid an outright depression, stocks were amazingly cheap. Mr. Whitman manages the $6 billion Third Avenue Value fund, which returned 10.2 percent annually for the 15 years that ended Sept. 30, almost two percentage points a year better than the S.& P. 500 index. The fund is down 46 percent this year.
“This is the opportunity of a lifetime,” Mr. Whitman said. “The most important securities are being given away.”
Read the full article
Friday, October 10, 2008
Dodge & Cox: Market Commentary and Outlook
The U.S. capital markets continue to experience a period of extraordinary turmoil, marked by liquidity and credit concerns in the financial sector and a series of government interventions. This has been a difficult period for our clients and investors in the Dodge & Cox Funds. As fellow Fund shareholders, Dodge & Cox employees share in the recent disappointing results. We believe that the fear and uncertainty currently gripping the financial markets mask the long-term prospects for global growth, and we see opportunities to benefit from this disconnect.
Market turmoil is nothing new for Dodge & Cox, as we have managed investments since 1930. In the last two significant banking downturns (early 1980s and 1990-91) banks experienced difficulties due to asset quality and funding concerns, and their stock prices fell to low levels. During those periods, many banks failed and the industry
consolidated. However, banks with strong, long-term business franchises survived and ultimately flourished during the subsequent recovery. It was not a case of the regulators bailing out systemically important banks during those prior downturns, but rather providing banks with the breathing room and flexibility needed to overcome temporary challenges.
The current credit cycle, beginning in the summer of 2007 but worsening recently, has proven to be similar in some ways but different in others. The lack of confidence in the financial system worldwide has severely constrained credit and capital flows, resulting in a series of bank failures in the U.S. and Europe. Mark-to-market accounting (which did not exist to the same extent in the 1980s and 1990s) has required banks to value distressed assets at the prices established by desperate sellers. This, in turn, has led to an unprecedented need by many financial institutions to raise capital in a short period of time, and has exacerbated the crisis of confidence in the financial system.
Read the full article
Market turmoil is nothing new for Dodge & Cox, as we have managed investments since 1930. In the last two significant banking downturns (early 1980s and 1990-91) banks experienced difficulties due to asset quality and funding concerns, and their stock prices fell to low levels. During those periods, many banks failed and the industry
consolidated. However, banks with strong, long-term business franchises survived and ultimately flourished during the subsequent recovery. It was not a case of the regulators bailing out systemically important banks during those prior downturns, but rather providing banks with the breathing room and flexibility needed to overcome temporary challenges.
The current credit cycle, beginning in the summer of 2007 but worsening recently, has proven to be similar in some ways but different in others. The lack of confidence in the financial system worldwide has severely constrained credit and capital flows, resulting in a series of bank failures in the U.S. and Europe. Mark-to-market accounting (which did not exist to the same extent in the 1980s and 1990s) has required banks to value distressed assets at the prices established by desperate sellers. This, in turn, has led to an unprecedented need by many financial institutions to raise capital in a short period of time, and has exacerbated the crisis of confidence in the financial system.
Read the full article
Should Global Stock Markets Shut Down to Cool Off?
Stocks could close lower today for the eight consecutive session, as a wide-ranging loss of confidence has taken hold of markets. Is it time stock markets to close for a few days and take a breather?
There are circuit breakers in place to shut down stock markets when a bout of selling looks like a panic, but they are all intraday measures and, despite large point declines, markets haven’t really come close to those levels. The circuit breakers also don’t close the markets more than a day. For the New York Stock Exchange to close for the day, the Dow Jones Industrial Average would have to fall 3350, or 30% of the average closing value of the DJIA for September.
The Dow industrials have dropped 21% through Thursday, as the market selloff hasn’t shown itself as an obvious intraday panic, but a slow steady decline in confidence. More troubling is that nothing has seemed to cheer markets. Markets have declined following major moves in the last few days, including Congress’s passage the Treasury Department’s troubled asset relief program, the Federal Reserve’s announcement that it will purchase commercial paper and even a coordinated global rate cut.
Part of the problem has been that programs like the TARP and the Fed’s acquisition of commercial paper will take time. Markets might see some relief once those programs start moving. If markets were to close until then, confidence might return to markets when they were reopened.
“The only rational cause for shutting markets is if the [group of seven leading countries] believes it can come to a coordinated set of policies that would address the situation in conjunction with the TARP getting up and running,” said Joseph Brusuelas of Merk Investments.
However, he warns that any action must be globally coordinated by the G-7. If U.S. markets were to close by themselves, market losses would just move offshore. Brusuelas suspects that if G-7 markets close, the secondary markets would follow suit. G-7 finance ministers meet today in Washington, and Bloomberg reports Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the markets while they “rewrite the rules of international finance.” However, Berlusconi later played down his comments.
Any closure has to come because governments believe they have a solution. A shut down without a coordinated policy response during that time would just put off the pain until markets were to reopen.
Closing stock markets isn’t without precedent. The NYSE was closed from March 4-14, 1933 for FDR’s “bank holiday” during the Great Depression, and it shut it doors again from Sept. 11-17, 2001 following the terrorist attacks in the U.S.
Link to the original article
There are circuit breakers in place to shut down stock markets when a bout of selling looks like a panic, but they are all intraday measures and, despite large point declines, markets haven’t really come close to those levels. The circuit breakers also don’t close the markets more than a day. For the New York Stock Exchange to close for the day, the Dow Jones Industrial Average would have to fall 3350, or 30% of the average closing value of the DJIA for September.
The Dow industrials have dropped 21% through Thursday, as the market selloff hasn’t shown itself as an obvious intraday panic, but a slow steady decline in confidence. More troubling is that nothing has seemed to cheer markets. Markets have declined following major moves in the last few days, including Congress’s passage the Treasury Department’s troubled asset relief program, the Federal Reserve’s announcement that it will purchase commercial paper and even a coordinated global rate cut.
Part of the problem has been that programs like the TARP and the Fed’s acquisition of commercial paper will take time. Markets might see some relief once those programs start moving. If markets were to close until then, confidence might return to markets when they were reopened.
“The only rational cause for shutting markets is if the [group of seven leading countries] believes it can come to a coordinated set of policies that would address the situation in conjunction with the TARP getting up and running,” said Joseph Brusuelas of Merk Investments.
However, he warns that any action must be globally coordinated by the G-7. If U.S. markets were to close by themselves, market losses would just move offshore. Brusuelas suspects that if G-7 markets close, the secondary markets would follow suit. G-7 finance ministers meet today in Washington, and Bloomberg reports Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the markets while they “rewrite the rules of international finance.” However, Berlusconi later played down his comments.
Any closure has to come because governments believe they have a solution. A shut down without a coordinated policy response during that time would just put off the pain until markets were to reopen.
Closing stock markets isn’t without precedent. The NYSE was closed from March 4-14, 1933 for FDR’s “bank holiday” during the Great Depression, and it shut it doors again from Sept. 11-17, 2001 following the terrorist attacks in the U.S.
Link to the original article
Ron Muhlenkamp's review of events that impacted the markets during the past quarter
I’m writing this letter just after the U.S. Senate and House passed the “bailout” bill. The media and the politicians have labeled the Treasury’s Troubled Assets Relief Program (TARP II) as a bailout of Wall Street. But, in reality, it’s a support for the banking system and is designed to keep the problems in the credit markets from overflowing into Main Street. In the past few weeks, this overflow had begun, making it difficult for some firms to get normal funding from their banks. For this reason, I believe the bill was necessary.
In this short letter, I don’t have the time to describe all the drivers that got us to this place. We will do that at our seminar on November 18, 2008. But I do want to mention a couple of the main drivers which reinforced each other and drove us to where we are now.
In 2005, the Financial Accounting Standards Board (FASB) issued FASB #157 which states that banks, insurance companies, and brokers must mark the value of the assets to market prices in their quarterly and annual reports. Regulations for each of these industries limit the amount of business they can do and the liabilities they can carry is a multiple of the assets and/or equity. Thus, FASB #157 allowed firms to expand their business as the market prices of their assets moved up, and forced them to contract their business as market prices moved down. This has become self-feeding.
Had we a similar accounting rule in effect in 1989, nearly every S&L and bank in the country would have been bankrupt. Most of you know that, in the 2005-2007 period, banks and mortgage brokers made mortgages and, therefore, home ownership available to people who could not have afforded a home by prior standards. (You may know that Congress mandated that mortgages be made available to low income people.) As some of these mortgages failed, the market value of the remaining mortgages fell. Any that were owned by financial firms, (banks, insurance companies, or stockbrokers), had to be “marked to market,” forcing the firms to raise capital or sell assets. Most had to sell assets — into a vacuum of no buyers. This caused further mark-down and the spiral began. Some managed to raise capital. Merrill Lynch got $12 billion from Korea, Kuwait, and private investors. Citigroup got $12 billion from Abu Dhabi; Washington Mutual got $7 billion from a hedge fund, TPG, Inc. Within eight months, each of these investors lost over 30% of their purchase price, discouraging other potential investors.
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