With Europe in turmoil and US equity markets continuing their free fall, virtually every investment professional I know is seriously worried. However, there are a couple of voices of calm and hope in this maelstrom.
John Hussman, the portfolio manager of Hussman Funds, who has been cautious throughout the market run-up the last couple of years, is now sounding somewhat more positive in his latest weekly commentary [emphasis mine]:
With the S&P 500 trading below 1100, the U.S. stock market is now in the upper range of what I consider to be reasonable valuations. Stocks are certainly not "cheap" or undervalued overall, but they are no longer priced to deliver unacceptably poor long-term returns.
I have no strong belief that stocks have reached a bottom. Although there is an increasing likelihood of a sustained "bear market rally," I believe there is a good chance that valuations will eventually move lower still before a durable cyclical low is established.
Still, investors should recognize that normalized valuations are now the best they've been since 1995. That may not be saying much, since the total return on the S&P 500 since 1995 has averaged only about 7% annually, but it is what we might call "the beginning of wisdom."
He continued [emphasis mine]:
When the news reports are uncontroversial in reporting that the U.S. is in recession, when they suggest that there is worse news ahead, and when they indicate that nothing seems to be helping, that is when the market is more likely to register its low.
My assertion is not that we are necessarily at such a low yet, but the present sentiment of panic is typically one that presents useful opportunities for gradually scaling into market exposure, as uncomfortable as it might feel over the short term. This is what good investors get paid to do - not always immediately, but over time.
Charlie Rose did an interview with Warren Buffett last week. Buffett is also beginning to see some value:
ROSE: Cash is said to be king now. Are you sitting on a lot of cash so that this is the time for Berkshire Hathaway (BRK.A) and Warren Buffett to look carefully at a lot of opportunities?
BUFFETT: Yes. We want to use cash. The reason we haven't used our cash, two years ago, we just didn't find things that were that attractive. But when people talk about cash being king, it's not king if it just sits there and never does anything. There are times when cash buys more than other times, and this is one of the times when it buys a fair amount more. And so we use it.
ROSE: There's a time to accumulate and a time to spend.
BUFFETT: Absolutely. You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple.
Warren Buffett is focused on long-term value oriented and he will admit that he is not good at short-term timing. None of this indicates that the equity markets around the world will make a bottom this week or this month. They can continue to go down. However, these comments are powerful rays of hope for shell-shocked bulls.
Buffett went on and talked about a lot of other issues surrounding the current crisis. More on that later in a future post...