@VIC: Unprecedented Value

Todd Sullivan attended this week's Value Investing Congress on behalf of Seeking Alpha.

Some reflection on the past few days and the Value Investing Conference.

Friday the Dow hit 10,700, and Wednesday it hit 9,200. People are scared. People are panicking. TV folks are ashen with fear. CNBC's Jim Cramer is running around in a panic telling everyone to "sell everything." Hank Paulson is on TV trying to reassure people. McCain and Obama are in a debate battling over who has the best "consumer bailout" plan.

Yet, a constant theme was observed at the Value Investing Congress. Disbelief. Not that equity values were evaporating, but that securities people have wanted to buy had reached buying targets in only a matter of days.

Bill Ackman said, "we are buying heavily." Whitney Tilson said, "we are buying hand over fist." Leon Cooperman said, "America is on sale." Several money managers I spoke to, (they and their activity will remain nameless until they disclose it, it is not my place to do so) were practically laughing at the prices at which they were buying equities. Despite a 14% drop in the Dow in 48 trading hours, this was a very happy group of people.

Why? Simple. Markets we are in today happen perhaps once a century. We are in a state of almost paralyzing fear. What does Berkshire's Warren Buffett say about fear? "Buy it." Talk to anyone you know and they want to yank all their money out of the market. Let me ask you this. Why? Until you actually sell a stock, any loss or gain you have is only theoretical. It fluctuates day by day. Once you pull the sell trigger you then have actually lost or gain money. Why cement a loss now unless you believe the value of American business will continue to decline in perpetuity? It won't, so if that is true, your imaginary losses today will decrease and perhaps become gains down the road.

Back to the conference. I spoke to countless people at the conference and there were two themes:

1) Nobody was selling anything.
2) Everyone had bought something (including me).

There were no signs of anxiety or panic. People were relaxed, joking and trading "can you believe "x" is selling for that?" stories.

It was my first conference and I plan on being a regular at future ones. As I think about what would make these folks (and myself) begin to attend with apprehension and be a bit nervous sitting there, my mind flashed back to 1999 and 2000. Stratospheric valuations would make us value folks nervous sitting there because if history tell us anything... there is a reckoning coming.

Comments

[DaveinHacke...:]

If these managers weren't buying anything -- if they were forced to sell even, due to clients pulling their money out -- do you think they would admit that?

2008 Oct 11 01:52 AM

[CLH:]

This market is like taking candy from a baby. Of course most people are babies.

2008 Oct 11 07:49 AM

[Mike Kayes,...:]

While we have been doing selective buying also, I remain very wary that perhaps prices can still move lower near term. I do agree with the "value buyers" that long term, there are a lot of very inexpensive, yet high quality stocks. The real key is determining which of today's "quality" stocks will maintain that status. These are attributes we look for relative to industry peer groups - low debt, high cash flow, leading market share positions, innovative product flow, top notch and focused management.

Michael Kayes, CFA
President
Willingdon Wealth Management
willingdonwealth.com

2008 Oct 11 08:34 PM