“Davison”: Now Is The Time To Invest

Now, if your investing time frame is the length of time it takes you to read this, ignore everything that follows because we are not talking to you. If it is longer, proceed.

“Davidson” submits:

The current environment is one of mass confusion in the media and on Wall Street. Markets are in decline, rates already low are falling as investors fear yet once again that another financial calamity is about to befall them. The US threatens to default on its debt not because it is in financial trouble, but because our politicians cannot agree. Greece, Spain, Portugal and etc are threatening the existence of the European Union and the Euro. A tsunami has negatively impacted the worlds near-term GDP. The predictions of a “2nd Dip” are making the rounds once more and the majority of advisors are feeding investors short term strategies to deal with an uncertain future. It is all Doom & Gloom on top of more Doom & Gloom!

The conundrum for investors is that where ever one looks, employment in the business sector is rising (employment in government is falling), home sales are rising, auto sales have been rising (albeit adjusted for a short-term interruption in supply due to the tsunami), retail sales are rising, exports are rising, the especially important US mfg employment is rising, individual debt loads are falling and most importantly US Real GDP is expanding.

History has recorded only two “2nd Dips”, 1937 & 1982. Each was caused by government actions to raise rates, raise taxes, and restrict lending or some combination of these. If politicians had decided to cause a US default or to raise taxes as part of the agreement moving ponderously through Washington, the potential for a “2nd Dip” was quite real. But, one needs to be at an elevated economic level for a correction to occur. We do not have this today having just moved into a slow economic expansion in Oct 2010. It is very difficult to fall from what is still the ground floor of economic expansion. Besides, this would not have started instantaneously and one has always had sometime to exit before the markets responded significantly to government actions.

The economic indicators remain quite positive. This is a good time to reflect on some quotes:

• Bruce Berkowitz says “Ignore the Crowd!”
• Warren Buffett says, “Be…greedy only when others are fearful!”
• Hetty Green said, “I buy when things are low and no one wants them.”

The common thread for each of these very successful investors is that they trust human beings to solve difficult problems by means that will not be self-destructive. I once again refer you to my favorite book of all time, “The Ultimate Resource” by Julian Simon 1981 who detailed the history of human ingenuity in solving great problems that seemed unsurmountable at the time.

When days appear dark, it is the value investors who buy the market precisely because they are optimistic when the majority are fearful.