Should we really be that worried?

Like the famous Yogi Berra quote, “it’s like déjà-vu all over again” or the movie “Ground Hog Day”, we seem to be seeing a repeating pattern of extreme worry and hope.  Although the facts indicate we are in an economic recovery, and corporate profits are setting new records, fears that “it’s only temporary” or “bad is coming back anytime” seem to permeate the psyche of many.

Then add the crazy scenario of Europe with a big election in Greece coming over this weekend (June 17).  Since the Euro Zone and the Euro as a currency are relatively new, nobody really knows what happens if Greece defaults on it’s massive debt, and what happens if they abandon the Euro currency.  The worst fear is always the fear of the unknown.  And…fear sells a lot of newspapers, tv and website ads—so be prepared for some really wild headlines. It is possible that we could see some movement in markets—up or down—but nobody knows what direction or amount—nobody.

Markets like certainty, so really, the worst outcome of the Greek election will be if it is an uncertain one.  But even if it is an uncertain one, history teaches us that those that are “in charge” are probably ready to take dramatic action to calm things down if they get too crazy.

So far, even the biggest pessimist must admit that somehow, over the past four years, the worst fears have generally been very exaggerated and wrong because for the most part, the people “in charge” have responded in a way that keeps the worst case from occurring---or the problems were not anywhere near as serious as reported.   I think my previous posts pretty much sum up how markets act---they are manic depressive and bi-polar to the extreme.  Smart “investors” take advantage of this fact. 

Despite all this fear of short term issues, to me and many others, it appears that bonds are getting very expensive and stocks seem very cheap.  Maybe bonds will continue to go up and many stock prices will continue to be depressed or even fall, but….it is really hard to imagine that stocks are not significantly higher five years from now.  It’s also hard to imagine that rising interest rates and rising inflation are not the most serious issues going forward.

It is hard to be a long term investor in a world dominated by media and speculators who are obsessed with what might happen tomorrow or in the next few weeks.  But history teaches that speculators are playing a zero sum game and long term investors generally become more wealthy by owning great companies during good times and bad.  Long term investors do especially well when they buy some stocks during periods when stock prices are low—like now and most probably next week.

Remember the quote, “When others are greedy, be fearful but when others are fearful—be greedy”.  

This paper is for educational purposes and for the sake of discussion. It is not a sales presentation and not a recommendation or personal investment advice. Opinions provided are exclusively those of Wayne Strout and are not the opinions by any financial institution. All investing involves significant risk of loss and there is no proven method to eliminate that risk. No investment should be made without a complete due diligence process, fundamental analysis and a discussion with your personal financial advisor.