The Glass Is Half Full

As everyone panics, this may be the perfect time to buy assets and invest - when investments are at a discount to their underlying value. As far as I’m concerned, any large market decline is just an opportunity to buy quality assets at a discount. It’s bargain hunting time for investors.

You have to view times like these as nothing more than an opportunity. If you don’t view times like these as an opportunity, you run the risk of turning into a pessimist who will not only act irrational (like some people who sell great companies for a fraction of what they bought them for just because the price went down and despite the fact that the company still has great fundamentals - does that make ANY sense?) but may miss many opportunities to make back the money that has been lost thus far.

A contrarian likes to do the opposite of the masses. As the masses have been selling, I’m sure there are plenty of contrarians slowly buying assets. The true dilemma for a contrarian is knowing when to buy and invest. A person only has so much cash on hand to take advantage of opportunities. I don’t believe the market is at the bottom at the moment - and that is the true dilemma. Should I wait for the prices to drop some more before investing or invest now? My inclination is to slowly invest all the way down. I’m not perfect and I make mistakes, so my best bet is to buy slowly all the way down.

The Sub-Prime crisis created our current economic woes. The Sub-Prime crisis was created by Democratic legislation that required (YES, REQUIRED) banks to lend to people that could not afford them. The program started under the Clinton administration and was accelerated by the Democrats in the last several years - post Dot Com Bubble Bust. In fact, Obama was involved in a lawsuit against CitiBank because he claimed it did not lend enough money to African-American neighbourhoods. So, in essence, he got his wish. The banks were being sued for not lending enough sub-prime mortgages. I dislike Bush as much as anyone, but little do you know, he tried to implement legislation to regulate the banks and prevent this crisis several years ago. The legislation never passed. Go figure.

As the banks began lending to literally anyone, the masses of people all had these large sums of money to go buy their dream homes. The real estate industry boomed. When people buy homes, they are spending a big chunk of the money they will earn over the next thirty years. When millions of people buy during a short period of time, a boom is created. Due to the lending practises imposed on the banks, the boom began. Artificial booms always lead to big busts. That is what we are witnessing now. I haven’t told you anything you didn’t already know, especially since I wrote an article about that a long time ago.

So here’s the bad good news. Many of these sub-prime mortgages haven’t even come due yet. I’m almost 100% sure that we are in store for a rough ride for the next 3 to 5 years. So as many people panic and sell their investments for a song (glass half empty syndrome) and as your investment accounts witness sharp declines, the smartest investors will be looking to buy and invest more of their money into great companies for peanuts. Yes, the next 3 to 5 years will present many great buying opportunities. So be on the lookout!

The next time someone starts talking about the grim economic situation and their investments, just remember all the opportunities on the flip side - The glass isn’t half empty, it’s half full.

Comments

[Lars39:]

Hope we still have a glass in 5 years.

2008 Oct 03 09:20 AM

[Alan Young:]

I agree with the main thesis, that looking for buying opportunities is better than wailing and moaning--if you've had enough foresight to hold back from buying for the last several months.

But you severely undercut your credibility by mixing investment ideas with political attacks--especially since you ignore Bush's role in _pushing_ the creation of subprime mortgages:

www.washingtonpost.com...

2008 Oct 03 09:51 AM

[Larry House:]

I know it is great sport to attack Bush, but the real push for subprime goes back to Clinton, and Schumer and Obama and others have played a part as well. Anyone who knows anything about our economy knows that NO ONE in the White House has much sway over how the economy functions. Our economy is much too big and diverse for that. The president is a convenient target, but it is way to simplistic to blame him for everything. Dig a little deeper and get the facts.

2008 Oct 03 10:19 AM

[Dave68:]

The number and dollar amount of mortgages really increased in the 2003/2004 period and accelerated for several years after that time. This seems to be related to the five investment banks being allowed to leverage at more than the 12 times maximum that had been in place for quite a few years. In 2003 these five investment banks (GS,MER,LEH,BSC,MS) were allowed to increase their leverage to between 30 and 40 times capital from the 12 times that had been in place in the past. Details at on the SEC reg change (15c3-1):

www.sec.gov/rules/peti...

www.nysun.com/business.../

Which party was in majority at this time?...no, not the Democrats. Let's stick with the facts and not infuse this site with political finger pointing. I think there is plenty of blame to go to both parties.

2008 Oct 03 10:28 AM

[Louis Paquette:]

daytrader,

I agree it's easy to critisize in hind sight, and sometimes this is distastfull.

However Bust & Co. have presided over the biggest debt bubble in history. And they are complicte. No doc loans, etc. were the ultimate abuse of resposible lending, yet they did nothing.

America's biggest threat isn't some Muslim in some cave on the other side of the world. America's threat is itself and its greed. And now that chicken has come home to roost.

Sorry to butt into the conversation but Bush and company have a part in Amreica's downfall.

2008 Oct 03 10:43 AM

[daytrader:]

to Diamond Lou

you remember 911,the first world trade center attack,the uss cole,the marines murdered back in 1983.that is the real threat!

BUSH&COMPANY ARE PROTECTING US!!!

2008 Oct 03 11:05 AM

[Smarty_Pants:]

The author makes some good points about keeping an eye peeled for good buy candidates. However, this is not the time for that. As the author also noted, things are likely to get worse before they get better.

The important aspect to remember is that the glass is half empty NOW and has been since Nov 2007. Prudence would have dictated trimming your portfolio to core holdings or cash no later than March 2008.

Avoiding big losses is the first step on the road to building a big account balance. Sure, XYZ widgets may be a screaming value at 10.00, but what's the point in buying if it slides to 4.00 and doesn't recover to 10.00 for another 4 years? Wouldn't it be better to hang on to your cash and buy it at 5 or 6 on the way up?

The author sort of hints at this concept, but doesn't make it obvious.

My 2 cents-worth.

2008 Oct 03 11:11 AM

[raising4dau...:]

you remember 911,the first world trade center attack,the uss cole,the marines murdered back in 1983.that is the real threat!

BUSH&COMPANY ARE PROTECTING US!!!


This USAF veteran wants to know what role Iraq had in any of the threats you cite above. And we're shelling out $10B per month rebuilding Iraq instead of rebuilding the US.

Every empire has fallen because it got over-extended. We're at risk of the same, if we're not already there.

Bush is like a kid with an unlimited allowance. He has no clue about the value of a dollar nor the value of his expenditures. His father may not have known what a gallon of milk costs, but that was a minor problem compared with the billions here and the billions there that W has spent..

I've never regretted a vote more than my vote for W in 2004.

2008 Oct 03 12:57 PM

[RatWatcher:]

Bush. Commodus, Roman Emperor ~ 200AD. Rome was never the same afterward. $700B theft, 2008 AD. US never the same afterward.

Highly recommend review of 3rd century Rome to see where US is headed. Stunning to see such massive borrowing and revenue cutting in the same bill.

Get a list of all Wednesday's and today's 'aye's', and never vote for them again!

2008 Oct 03 11:09 PM

[I need a ba...:]

George Bush bragged about his policies and pushed for home ownership with nothing down. For you doubters out there ... he should resign.

www.msnbc.msn.com/id/4.../

2008 Oct 04 09:09 AM

[I need a ba...:]

Obviously you folks defending George Bush have no idea about how his policies led to so many "home" less. Here he is bragging in 2004

www.msnbc.msn.com/id/4.../

You can find George Bush bragging year after year about his nothing down home ownership policies. Now he would not dare say such things.

2008 Oct 04 09:13 AM

[venividivici:]

Yeh but Commodus ended up getting strangled in the bath by his girlfriend's fitness instructor. Now it doesn't matter how badly they stuff up.
George will go home to the ranch and make a fortune on the speech circuit and with book deals. Gee maybe the Romans had something.

2008 Oct 04 12:38 PM

[whisperonth...:]

My glass is half full, my investments are holding their own with just a bit of nudging when the price is right. But then, I didn't try to buy a house when I couldn't afford it, I didn't buy a second car when one was sufficient, I didn't need all the toys others wanted - the ones by the front curb with for sale signs on them now. I saved my money and taught my kids how to be broke and now all of us are doing okay - not great, but not broke. We are all making all of our payments on time, giving up whatever is necessary so we can eat and drive (no buses in our area), wearing last year's clothes because money is tight. But we are doing okay and will most likely weather this storm too. So even though Clinton started this whole thing, and even though Bush may not have ended it, we are all still responsible for knowing if we can afford something or not. If not, don't buy it. If you buy it anyway, pay for it. Otherwise, you get the slacker award. And lately there have been way too many slackers blaming the banks. The blame goes both ways and I hope the slackers get punished too.

2008 Oct 04 02:19 PM

[fa28:]

The analogy of a glass half full or empty can only be answered one way. If your filling the glass it would be half full. If you were pouring out the contents of the glass it would be half empty.

2008 Oct 04 05:46 PM

[Jim Hawthorne:]

True, fa28!

I have no problem recognizing and understanding the witch's brew of greedy financial blunders, poor economic policies and sheer denial that have emptied the glass!

I have much more difficulty recognizing the elements that will assist in the refilling of the glass!

Perhaps they're just too far over the horizon?

2008 Oct 04 07:44 PM

[innerlight:]

The most widely cherished illusion on Wall St. is that financial gain will raise the level in the glass.........

2008 Oct 04 11:40 PM

[Robert Nabloid:]

SO True! With Inflation taken into account, how much of the gains are ever real?

2008 Oct 12 04:16 PM

[Robert Nabloid:]

I did write that Bush wasn't the only one to blame. In fact, Democrats might be just as fault as he for many of the sub prime problems. Let's face the fact... OBAMA sued Citibank to force them to give out more sub-prime mortgages to people that could not afford them. Why? Because there was legislation that required banks to give out sub-prime mortgages. You can't purely blame the banks for this mess, as governments as far back as the Clinton Administration have some blame in this game. It's easy to discount past administrations merely because they aren't in power when the results come to fruition.

All parties have some blame in this game. I just think it's funny how Bush (despite his MANY flaws and mistakes) gets the entire blame.

2008 Oct 12 04:20 PM