Hoard cash at your peril – the smart money smells opportunity
Click Here For The Best Investment You Can Make In A Recession!
Globe And Mail
February 21, 2009 at 6:00 AM EST
In case you're thinking the economic and market news can't possibly get any worse, this week's global headlines should put a lid on any outbreak of dangerously early optimism.
Severe recession has taken a firm grip on the leading economies, business confidence is plunging, corporate earnings are in full retreat, commodities are still getting hammered and world markets are responding with fresh waves of fearful selling.
“Market hits new crisis low,” blared a Wall Street Journal headline yesterday. And that was before a further headlong retreat in the United States that was slowed only by reassurances from the White House that the Obama administration still believes in a privately held banking system.
In Canada, where the future of the banks is about the only thing investors don't have to worry about (yet), the benchmark S&P/TSX composite index fell another 2.9 per cent, bringing the shortened week's decline to an ugly 8.4 per cent.
“We're in the middle of a kind of massive economic crisis,” Paul Volcker, the former Federal Reserve chief and current Obama adviser whose anti-inflation policies triggered the 1981-82 recession, helpfully chimed in.
Okay, we get it. We're headed straight downhill. It has reached the point where once redoubtable buy-and-hold types aren't doing much buying and even less holding.
But take a look at the wily market veterans who have been through these dreadful downdrafts before. Most are plowing money into stocks, seemingly oblivious to the ill winds.
These are value investors who focus on long-term stock performance and are able to block out all the economic noise, not to mention the painful short-term consequences of staying in a game where everybody still seems to be playing a losing hand.
One such stalwart is Bill Wheeler, a 62-year-old Vancouver investment pro who plainly regards cash as a wasted investment opportunity.
Sure, he's concerned about the current state of the markets, but it won't change a strategy forged in the tough markets of the mid-1970s and early '80s. “If I were sitting on a bunch of cash today, I'd put it in the market now, because I think it's good value,” says Mr. Wheeler, chairman of Leith Wheeler Investment Counsel Ltd. “I don't believe you can make money timing the market. Who knows if you're going to be offside for a month or six months? I doubt you're going to be offside for a couple of years.”
Leith Wheeler opened its doors in 1982, at a time when money managers who held loads of cash were at the top of the heap – much as they are today. Over the next couple of years, “we were pretty smug” that the firm also had a strong cash position, he recalls.
But then a young staffer studied the results. The firm would have fared better if it had been more fully invested in good stocks. These outperformed the market in the down phase and did even better as it recovered. “That was pretty much a wake-up call,” Mr. Wheeler says.
“People in the savings mode should view this as a bit of a gift,” he says of current valuations. “It's an opportunity to purchase stocks that are likely to give you much higher returns from these levels in the years ahead than we've seen in the last few years.”
As for investors waiting on the sidelines for clear signs of an upturn, his advice is to stop looking: “There won't be anything. The market will go up when things look bleak and there'll be no explanation.”
Those expecting stocks to retrace each advance could be left behind.
He closes on a thought that would get a commendation from Donald Rumsfeld.
“How did professional investors miss a market drop of 50 per cent [in 2008]? The answer is that at any one point in time, the market is pretty smart. It factors in all the known issues. And it changes when an unknown issue becomes known. ... The more time I've spent in the market, the less I think is predictable.”
Click Here For The Best Investment You Can Make In A Recession!
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