January 30, 2009

A new era...but ??

In euphoric or pessimistic markets always create the same type of proclamations of new era.

In the recent Tech bubble investors have piled on Warren Buffett and claimed that his old valuation metrics does not work in the Internet era and he is a "has been", as evidenced by Barron's cover "what's wrong Warren?". Also I submit to you the decoupling theorist and their new era for the Chinese stocks as it can maintain itself without the rest of the world.

Today is no different. Although the market conditions now is terrible and has not been witnessed by many investors, similar proclamations are being made. Lets review some of these claims:

  • Buy and Hold is dead. Many strategist and money managers have been repeating and promoting this mantra. It is very convenience that they do the self promotion is very obvious.
  • Index funds are dead.
  • Buffett strategy is stale. Similar to the Internet bubble many including Barron's are claiming the death of the Oracle of Omaha. Time will tell, yet again, if he will stand the test of this market.
  • Fear turns everyone into an economist. Many investors have diverted from what they do of finding investable businesses to making macro calls. Many investors are allocating their funds to gold, as the expectation that hyperinflation due to US spending will drop the dollar. For example, Einhorn's recent letter that has been making the rounds in the blog-sphere. He is good money manager analysing companies and picks loser from the winners. In his recent letter he made a bet on gold as fear from currency debasement. The gold trade is popular now as fear grips investors. Again you divert your energy from what you do best into something unrelated because of emotions. This is similar to the euphoria of investing in the internet money losing companies because you do not want to miss the boat.

In the extreme of market conditions emotions and claims like this surface in earnest. Maybe it is a sign that we are overdoing it on the downside. I will stick with what is tried and true there is never a new investing paradigm; It is always about business fundamentals and long term earning power.

1 comment:

Abby said...

Hi! I'm an editor for Seeking Alpha. Please contact me at your earliest convenience at acarmel@seekingalpha.com. Abby