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One of the wisest investors I know is Arnold Van Den Berg. He runs Century Management value investors that out performed most money managers during the bear market of the early 2000’s. They have not done as well during this bear market however my guess is that they will be leaders once this stock market turns around. Mr. Van Den Berg is a seasoned investor who has seen various market cycles having been in this business for forty years. He has begun posting occasional interviews on his website as he did last week. He has a way of explaining the financial markets in easy to understand terms and often in witty and entertaining ways. I especially like his analogy of recognizing stocks on sale just as we recognize groceries on sale. Another favorite saying is that the greatest truths are simple. They are indeed. Stocks are cheap now. That is a great but simple truth.
Follow the link below to listen to this wise and insightful investor. Some of the main points he makes in the interview are summarized below. The credit for these facts and ideas are his entirely.
- Compare the facts from the 1929 Depression and realize that this is nothing like that time. All activity (gross domestic product) dropped nearly 50% during the Great Depression compared to a 1% drop with today’s recession. There is a 3.8% activity decline rate based on the last quarter and while this may rise to 5 or 6% it still does not compare to the almost 50% experienced during the Great Depression. Unemployment reached 25% during the Great Depression vs. 7.6% today with the chance of going to even 9% to 10%. By comparison in 1982 unemployment went to 10% and the economy had a recession but not another depression.
- The market can make huge gains before improvement is seen in the economy and the market moves based on cheap prices regardless of what is happening in the economy. For example in 1932 when the stock market bottomed unemployment was 23.5%. One year later unemployment had risen to 25% but the market had already moved 154% while the economy was still getting worse! Three years later in 1931 the market had moved 200% and unemployment was still almost 20%. The market discounts whatever it sees in the future.
- There is a great tendency to want to sell stocks and go to cash or bonds when fear is high as it is now however after a market decline it is not the time to sell good quality stocks because of the fear factor. The worst bear market since the depression was a 45% correction. This market has gone down that much already during this bear market and while this may not be the exact bottom we have already gone through most of the decline. The average return one year after a bear market is 31%!
- We are in a zone where the market trades only 15% of the time therefore the market is higher 85% of the time. It could go to 90% but investors should look out 2 to 3 years not 2 to 3 months in making investment decisions.
The minimum investment with Century Management is now $1 000 000 however their website offers a wealth of free information.