November 20, 2018
I once had to take a class in Victorian Literature. (When you attend school part-time while working full-time and shift-work you take the classes that fit your schedule and not necessarily ones that fit your interest.) I didn’t really know what “Victorian Literature” was—but hey, I was an English Major, so I had better get started on some English. Nothing is more “English” than Victorian Literature. My first night of class I learned that we would need to read and write papers on 10 novels written and published during the reign of Queen Victoria—roughly the second half of the nineteenth century. Well, there went my Spring.
One of the 10 novels was Bleak House, written by Charles Dickens. It was huge (over 900 pages). It was deep, it was extremely detailed, and I loved it. After that class, I would go on to read the rest of Dickens’ works and he has become one of my favorite authors. His stories are essentially about people and their follies. The typical Dickens novel is about developing strong characters and reporting how they react to each other during mundane, everyday events in their everyday lives. And the names—wow, the names!
Anyway, a Dickens contemporary and friend was fellow writer Charles Mackay, author of Extraordinary Popular Delusions and the Madness of Crowds. It was the first time I read about the Dutch Tulip Mania incident. I won’t get into the whole sordid story of the Tulip Mania since I think it’s fairly well known and there is always Google and Wikipedia—but it’s more about groupthink and manias than Tulips.
A famous line from Mackay and, the gist of his book is, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Like Dickens or perhaps inspired by Dickens, Mackay, and I think other Victorian writers studied and then wrote about human behavior more than about the events or things that happen to humans.
By now you must be asking how does this stuff relate to our investments? It is, of course, my opinion that presently, traders and speculators in the markets are acting in herds. They are going mad in herds. And we the few, the free, and the brave have never lost our senses. The markets are falling, and they will recover—this is a normal, run-of-the-mill correction, and worst-case scenario, dare I say it, maybe the one year in five when the market will not be positive.
We are investors and we have a long-term, 30,000-foot-high perspective of the herd going mad! Nothing has really changed in the world. Sure, the Fed has raised interest rates to a range of 2.00 to 2.25% (big deal!) and the President is in a very public negotiation with China on an international trade deal (in his typical bombastic way.) Oh, and the Democrats were able to take control of the House (a balanced Congress—not the worst thing that could happen.) That’s just about it in a nutshell! None of those three things together or by themselves are going to sink this economy.
I think we should remain buyers, or at least not sellers, during this fit of madness. And when we look back from a couple of years, I believe we will be grateful we did not panic. I will, as always, be stingy in my buying and when I don’t need cash I will not sell. If need be, I can hold some cash and wait for a better price—but really, the prices are fairly nice now.
The thing that worries me most (and the reason I write these newsletters in the first place) is getting the phone call from one of our clients saying that they can’t stand the volatility anymore and they want to sell! Often the call comes out of left field after, for example, a Thanksgiving Dinner conversation with their Cousin Vince or Uncle Sal (“who is pretty good at this”) and he thinks the world is heading for a long 1929-like recession. After all, Uncle Sal bought Apple at $3 and sold it at $230. By the way, one of the things I have noticed since I’ve been doing this is that when people talk publicly about their portfolios, they usually relate the one time when they bought low and sold high at the exact perfectly right moment. (I had an ex-friend like that—and he ended up with three years in a Federal Penitentiary for stealing his client’s money.)
So, my message now—and as it has been for the last more than 13 years—please don’t listen to the naysayers—don’t follow the herd of people heading for the Market-exits—this is temporary and it will pass, and together we will get through it. We do not want to lock-in losses only to wonder later, what was I thinking? and when is the right time to get back into our long-term investment?
Thank you for reading—this one was certainly not a normal or very focused newsletter—but it was from the heart. Marty
