“Economic Laws Cannot Be Depended Upon If We Disregard Psychology…”


Price declines always need an explanation, even if the causes stated have little basis in reality.  This time blame is centered around trade, interest rates, global growth, and a few other things always proceeded with the word “if.”  A few examples for you:

 If tariffs are enacted, earnings will decline as costs increase and revenues decrease.

If interest rates move higher, costs will increase, profits will suffer, and earnings will decline.

If world trade is reduced because of tariffs and interest rates increasing, there will be no global growth. The world will suffer, and it will surely cause another great recession or dare I say a depression. 

If you have another explanation, please fill in the blank:  

If___________________________, we will lose all our money.

Over the last four decades, I have experienced many rapid price declines, and I am a bit cynical regarding causes. What I do know is that selling begets more selling, just as buying begets more buying. With the passage of time, prices will ultimately settle down at realistic prices that represent close to fair value. That is why greater than average returns have flowed to those few individuals who have the mental ability to buy when the majority are selling.  Buying at a low price reduces risk and increases potential returns.

For years Barron’s has invited a number of influential leaders in the world of professional investment management to participate in a roundtable discussion. Barron’s calls it their “annual investment talkfest and stockpickathon.” The rest of us know this annual gathering as “The Barron’s Roundtable.” This year, one of the new participants was Todd Ahlsten, chief investment officer of Parnassus Investments, and lead manager of the Parnassus Core Equity Fund. He shared a story that I felt was worth passing along to you:

My dad was a captain at TWA, where he was a pilot for 32 years.  The company went through three Chapter 11 bankruptcy filings; he got laid off twice, and then the airline disappeared.  That was my childhood.  That’s credit problems.  As dire as this conversation is, the U.S. is home to the greatest innovations in the world.  Look at Googles and Amazons and Apples and Nvidias.  We are still a creditworthy nation with great talent.  We have diversity and population growth, and we still have immigration.  I get that the numbers don’t look good, but this country has a lot going for it.  Our banks are a lot better than some of Europe’s banks.  They look better than Japan’s banks, and China’s.  I’m going to bet that the diverse people in this room find great companies in which to make money.

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Disclosure: Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments, is a registered investment adviser.  Anderson Griggs only conducts business in states and ...

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Gary Anderson 1 year ago Contributor's comment

Nice pep talk. Key is how open we are going forward. Certainly Ahlsten was astute to point out that we still have immigration. But Trump is becoming an isolationist in many ways, including even legal immigration. The method of US success appears to be turned on its head by POTUS, so will we recover from it?