I am troubled by Mr. Dremen in this one…
First watch today’s video from FOX.
Now, back in October 2007 Dremen wrote:
Since coming to Wall Street in the late 1960s, I have been through seven such crises. Somehow, the market survived them and thrived. Look back even further to the period following the end of World War II, and sure enough, you’ll find that pattern holding in four more market spills. Beginning with the first postwar panic, resulting from the 1948–49 Berlin blockade, stocks have tumbled only to come roaring back to new highs. The worst market break came in 1973–74, during a nasty recession and the Arab oil embargo. The most recent was the dot-com slide, which began in March 2000 and ended in late 2002. The Nasdaq Composite, heavy with tech names, still has not regained the ground lost in that crash, but the broad indexes have.
During each crisis investors felt confused, uncertain and panicky. They believed nothing in their previous experience could help them cope with the ominous new world they faced. “Sell, sell, sell,” their inner worrywarts advised. “Save your capital before it’s too late.”
This almost always turned out to be a bad move. Selling in a crisis is foolish. Yes, if you had sold the S&P 500, say, a year into the bear market, in March 2001, you would have avoided another 28% decline before it hit bottom. But would you have had the wisdom to get back into stocks a year and a half later? I don’t know of anyone advising an exit in March 2001 who also switched to a bullish stance in fall 2002. And if you had sold in March 2001, and stayed out, you would have missed an opportunity. Since then the stock market has returned 46% (including dividends). On average, for each of the dozen crises, the market was up 36% one year after the low point, 44% after two years.
Today’s stock market remains solid with good fundamentals and many cheap stocks at hand. The ongoing liquidity crisis must be handled gingerly, of course. Commit your capital slowly as several more shocks must be absorbed before a broad market rally begins. Here are several stocks to look at:
CIT Group (CIT) is one of the nation’s most diversified finance companies. Because of its small subprime business, CIT has dropped 34% from its June high. CIT presents good value at seven times trailing earnings, with a dividend yielding 1.4%.
One of my longtime favorite stocks is Fannie Mae (nyse: FNM, which I recommended last year and in my 2006 assessment column last winter and suggested that you keep it. If you don’t own Fannie now, buy it. The company has taken its lumps in recent years, yet it should benefit from the subprime mortgage debacle. Fannie, along with sister entity Freddie Mac (nyse: FRE ), has the industry’s best mortgage acquisition standards, and a bucketful of cash.
In February of this year he wrote:
Most of the 49 stocks I recommended in this column in 2008 were unable to escape the damage. If you had bought them all, you’d be down 26%, after subtracting a 1% transaction cost on new purchases. Similarly timed investments in the S&P 500 would have lost you 16%. (None of the figures here include dividends.) My mistake: being heavily weighted in financials, and being unable to predict which ones (like Citi and AIG) would get help from the federal government and which would be allowed to sink beneath the waves. I suffered big declines in Fannie Mae (nyse: FNM), Freddie Mac (nyse: FRE) and Washington Mutual (nyse: WM).
Thanks in part to Paulson’s desperate and unpredictable actions, common stocks of good banks and brokers went into death spirals. For the full year the S&P 500 financials index was down 55%, versus a 38.5% drop for the S&P 500 index.
Now we are in a recession which I think will be our worst since World War II. I expect the price of crude oil and other commodities to go LOWer and unemployment to hit 10% by year-end.
Obama’s economic team faces a Herculean task in turning the economy around. Central bankers around the globe are printing money in an attempt to prevent a deflationary recession. If the bankers are successful, deflation will be contained and the recession abated, but we’ll pay for this rescue with higher inflation for years to come.
Amidst this Dickensian darkness in our economy I also believe that it is the best of times if you happen to be a value investor like me. I am now seeing buying opportunities that I have rarely seen in my 32 years managing money
So, we know he was wrong in 2007.That is not an indictment, most folks were, including me (I was fortunate enough to miss the worst of it). My problem is with him still clinging to the same names for investors today as if the fundamentals of financial firms are not permanently changed AND if anyone has watched Congress the past month, are going to change even further. Also, blaming Paulson for the collapse of financial firms is erroneous. It smacks of blaming someone else for his investing mistakes. They collapsed not because of Paulson’s actions but because of the garbage they held (and many still do). It seems as though Dremen has not learned from his past mistakes.
I think it isn’t very responsible to reccomned investors buy banks now when:
1- The government is the majority shareholder in most
2- Increased regulation and restriction are coming down the road
3- We do not know how detrimental to earnings going forwsrd these news regulations will be
4- The government is dictating terms for compensation all but assuring the best talent will not be working there.
How can we recommend people buy shares in a company when we really have no idea what its business environment will look like in 6 or 12 months? If we do, aren’t we are gamblimg and telling people to do the same? Now, I am not saying Dremen is wrong in his outlook. Banks may very well recover and be fine. What I am saying is that nobody knows what rules the financial services industry will be playing under a year from now. How can we tell people to buy shares in the participants knowing that? I can’t.
For the record, I am long Wells Fargo (WFC) and holding it. I will not be buying more.
Disclosure (“none” means no position):None
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