The recent market turmoil carries with it echoes of 2008, but relying too heavily on analogies from the last market panic seems misguided. Europe and the U.S. must address serious sovereign debt issues, but the financial system itself appears less vulnerable than in late 2008.
There is now no doubt that Bernanke’s Fed will do everything in its power to alleviate the pain of market participants. The Fed is doing many foolish things and distorting capital allocation decisions, but one thing is clear: Given the central bank’s ability to print dollars, repayment of U.S. government debt in nominal terms is not in doubt. Neither is the Fed’s ability to flood the financial system with cheap liquidity.
While we are sympathetic to the cautious views of superinvestors like George Soros and Seth Klarman, we are equally sympathetic to the view that preferring an asset that is easily printed in unlimited quantities is foolish. Holding cash has little appeal to us following the recent market decline. We would much rather own cheap blue-chip corporations such as Cisco Systems (NASDAQ:CSCO), Dell (NASDAQ:DELL), Goldman Sachs (NYSE:GS), Hewlett-Packard (NYSE:HPQ), Microsoft (NASDAQ:MSFT), Pfizer (NYSE:PFE), and Sony (NYSE:SNE), to name a few. HP’s Leo Apotheker deserves much criticism for his recent boneheaded allocation of capital (e.g., buying Autonomy instead of HP stock), but this does not mean investors should miss out on the capital appreciation HP shares will likely deliver over several years. Never let anger get in the way of profits.
Researching this superinvestor issue has been quite exciting for us because most recent superinvestor buys have traded down materially on little or no news. For those who are not paralyzed by macro concerns, this presents an opportunity to scrutinize investments favored by some of the smartest value investors around — and to buy at a discount. Probabilistically speaking, this doesn’t sound like a losing proposition.
We find the following three superinvestor holdings particularly noteworthy... [read more]
The Manual of Ideas, August 1, 2011 [view excerpt]
— The Superinvestor Issue (176 pages)
Editorial Commentary — John Mihaljevic highlights three investments
MOI Model Portfolios — Tracking our favorite ideas in three portfolios
Exclusive Interview with Lisa Rapuano — On finding quality, cheaply
50+ Portfolios with Signal Value — Surveying ideas of top investors
Screening 900+ Holdings of 50+ Superinvestors — Hunting for bargains
Profiling 20 Superinvestor Holdings — Analyzing superinvestor favorites
Value-oriented Stock Screens — Screens for bargain-hunting investors
This Month's Top 10 Web Links — A selection of third-party resources
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