This time is different

This time is different. These four words are the fastest path to losing money in the equity markets.

In the 1990’s more than a few people came in my office with technology stock picks, the hot stock of the day. As I looked into these companies, I discovered that for the most part these firms had few if any customers and therefore minimal sales. They had a “burn rate” that is how long it would take at current expense levels to exhaust existing capital! These firms had no track record, no customers, no assets, brand or otherwise, and certainly no profitability.

When I would explain to clients that we don’t buy assets such as these for their portfolios, they would reply, but this stock is gaining 5 to 20% a day in market price. “This time is different,” my clients would explain. The Internet is the future, which is how we need to invest.
These “no asset, no customers” stocks went on to lose all their value and the overall Nasdaq lost 80% of its value in the tech bust.

Over the long term markets are driven by fundamental economics, earnings, assets, cash flow and growth. Over the short term, markets are driven by fear and greed. The 1990’s was an intense greed cycle. Greed cycles are followed by bear markets. The technology bust began a bear market which sustained itself for three straight years.

Today we are in a fear cycle. I am again hearing, “This time is different.” Only we are on the opposite end of the cycle, this time we are moving down with fear, just like we moved up with euphoria in the 90’s.

Equity valuations are incredibly low with many quality stocks trading at values and multiples not seen in years. Fear cycles are followed by bull markets. Now is the time to buy, not sell equities.

This article from the New York Times gives a helpful, much needed perspective in these challenging times.

May prosperity be yours today and every day,

Mackey
PS
The link may require a log in, but it is free! Enjoy
http://www.nytimes.com/2008/10/12/business/12stox.html?em