Thorny Questions

Here at "A Dash" we try to help investors find the best answers to tough questions.  Any investment manager with a long-term record of success (like us) takes plenty of contrarian positions.  By definition, the current position usually seems implausible to many investors.

Here is the irony.  The confused investor who has done the wrong thing for the last several months is still the most difficult to convince.  The popular answers seem so obvious.  The contrarian (and correct) answers are more abstract and therefore more difficult.

Here are a few examples that we are hearing.  In each case, the challenge is not so much finding the correct answer, but explaining it to someone who has already made up his mind.  In this overview article, we merely state positions, but each can be explored at length.  At the moment, it seems more important to highlight some terrible and very common mistakes.

• The market has rallied so much, there has to be a correction.  Why?  It did not really work that way on the decline.  We are still below the pre-Lehman levels, and most of those concerns have been addressed.  There seem to be many ready to buy each dip.
• The market cannot rally with unemployment so high, since this means the consumer is crippled.  Companies can bounce back with thin work forces and make plenty of money before the big-time hiring binge.  Personal consumption has not gotten as weak as expected.  Money is getting spent, as specific stock data and retail sales demonstrate.  Corporations have cut costs, and are very leveraged if revenue increases.
• The Fed is ruining everything; Bernanke missed the entire crisis.  Bernanke is a public figure who has made many statements for the record.  As is the case with any such person, it is possible to compile some statements that make him look foolish.  During his time in power, circumstances have changed dramatically, and he has naturally changed his position.  Our viewpoint is that he has done so quite wisely, and earned his reappointment from President Obama.  Blanket statements such as "he did not see the housing crisis" are inaccurate and quite unfair.
• Warren Buffett made a mistake in October, so we should not believe him now.  This is similar to the Bernanke opinion, but it is even more foolish.  Those making this statement are suggesting that we ignore a multi-decade period of unparalleled success because of Buffett's call to buy last October, a call that was 35% too soon.  The wise methods of a lifetime did not work last autumn.  They do seem to be working again now.

Conclusion

Many are thinking about problems the wrong way, trying to force a very unusual period of time into some specific historical context.  It is not so easy.  Most such efforts are post-hoc data fitting.

It is especially dangerous to reject methods that have survived the test of time–and by this we mean both economic and investment methods.