The panic of 2016 is opening up opportunities that we haven’t seen since 2009. Like Bruce Berkowitz of Fairholme Funds said in his last letter “My three decades of experience dictates that the seeds of great performance are planted during the toughest of times. Above-average returns only seem painless in hindsight. After all, if it were easy, everyone would do it.”
We are finding ourselves able to acquire shares in companies trading at 2/3rds of their most conservative estimate of liquidation value, getting future earnings, growth, and franchise value for free. The only times banks have traded this low in the last 30 years were 1990, 2008 and 2011 Each of those presented incredible buying opportunities and this will be no different. The risks are far less for these companies now as many have double or triple the capital that they had then. When the market turns, I have no idea, and anybody long stocks is going to look stupid in a bear market. But what I am sure of is that this is exactly the environment that leads us to above average long-term investment returns. When the focus is all on the next quarter, as opposed to the next 3 years, opportunity abounds.
If you find yourself struggling psychologically with a bear market, you are not alone. My advice is to detach yourself from it. Realize that you are invested in fractional shares of real businesses that have intrinsic values. The vast majority of these businesses are steadily growing intrinsic value and all trade at incredible discounts. Over time, these discounts will dissipate and we will reap the benefits. Keep your goals in mind. Are you invested for the next quarter, the next year, or the next 3-5 years? Are you willing to accept short-term volatility, for higher long-term profit potential? The vast majority of our investments are going to be increasing dividends over the next several years, which should create ideal income opportunities for those of you close to or in retirement. Dividends, covered call income, and significant upside potential are as rare as white unicorns in today’s market, but they exist in your portfolio. The price we pay is short-term volatility. As always, feel free to call me if you need anything, 805-886-8140. If I don’t answer, leave a message and I’ll call you back promptly! Thank you very much and I hope that you enjoy the research reports below: