It is no wonder that investors are confused and frightened. Huge, well-known financial institutions have faced embarrassing losses (or worse) and the viability of whole industries (e.g. mortgage insurance and bond insurance) has been questioned. Everyone—lenders, borrowers, investors, speculators, regulators and rating agencies—played a part in creating the financial crisis. Every corner of the financial world is affected, yet the dimensions of the future losses are not yet measurable. Lenders and borrowers are hesitant to do business with each other, and the financial markets are not functioning normally.
In this environment, the stocks of companies with real problems have been punished severely. Unfortunately, the stocks of many other companies that have been impacted in minor or temporary ways have also been subject to heavy selling pressure. The potential rewards for successfully navigating this kind of market are great. However, to earn these rewards, investors must have the courage of their convictions so they can stick with their investments during extended periods of uncertainty. This can be painful.
Some people do not have the temperament for investing in markets like this, and they would probably be better off owning Treasury Bills or a government securities money market fund (we offer one). There is no shame in staying on the sidelines if that allows one to sleep well. Peace of mind is important.
For those with the courage and patience to buy good assets when nobody else wants them or can afford to buy them, we think this is a very good time for investing. Terrific assets and companies with strong franchises are available at very attractive prices. We believe that it takes very little imagination to envision the possibility of 50% appreciation in most of our stocks over the next 2-3 years.
Direct Link - Portfolio Manager Letter–Value, Hickory, Partners Value, Partners III Opportunity.
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