Value Library
The following is an
excerpt from the ABC Perspective - October 2001 - Pg. 1
Opportunity Knocks
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If buying equities seem the
most hazardous and foolish thing you could possibly do, then you
are near the bottom that will end the bear market. |
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- Joseph E.
Granville |
When is an opportunity, in fact, an
opportunity? Take the present period. Uncertainty is rampant. Many
investment commentators offer the advice that if you are in doubt, do
nothing. While this might be the wise thing to be doing today, post
September 11, the point is that many stocks continue to drift lower as
investors liquidate portfolio holdings. It is our view that in the
process of reliquefying, many investors may be "throwing the baby
out with the bathwater".
Prior to the September 11th's tragic
events, worldwide economies were actually decelerating. Unemployment was
rising, business was slowing, and interest rates were declining as
central banks were responding to recessionary economic indications.
September 11th didn't create a recession; rather the terrorist events
simply accelerated an economic slowdown and short-circuited business and
consumer confidence. Ultimately the end result was greater investment,
business and economic risk. This risk has led to greater uncertainty.
With increased uncertainty, investors, consumers, and business have been
encouraged to do nothing. Everything has been put on hold. Few are
willing to step outside their safety zone.
As a contrarian, I am fascinated by
the virtual unanimity to do nothing in the equity markets. Investors
have taken a "wait and see" attitude. They appear to be
anxious, fearful, and gun-shy. While doing nothing may be the right
thing until the uncertainty clears, I sense a tremendous buying
opportunity developing. Investors are nervous; many are trying to raise
cash in a vacuum with few bidders for stock. A number of bargains are
starting to appear. The ultimate question is when to buy.
I believe opportunity knocks. While
we are not sure of the exact timing of this buying opportunity, it is
far more important to catch the trend rather than to pinpoint an
absolute bottom in a particular stock. For the most part, we believe
that it is too late to sell. As a result, we have drawn up an extensive
list of potential ABC purchase candidates. We are tracking this list
closely and have started to nibble away at particular stocks.
Irwin A. Michael, CFA
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