9/30/2008 – The Market Sell-Off

The stock market experienced a truly horrible day yesterday falling almost 9%. This action was in response to the House of Representative’s shocking failure to pass the $700 billion plan to bolster the financial system. There is serious stress in the credit markets and in our banking system making government support critical at this time.

The natural reaction for many investors is to end the pain of losses and sell stocks. While we can give no guarantees on what will happen in the short term, selling into panic markets usually ends up being the wrong move.

Historically, when fear and panic are rampant like today, stocks should be bought, or at least held onto, not sold. A common gauge of investor fear, the VIX index, is near an all-time high. Even money market funds are too risky as investors pull their money to buy T-Bills that pay virtually nothing. The cardinal rule of investing is to buy low and sell high. Please remember that the average stock has fallen by 29%. Stocks are low and should be bought for investors who can withstand the volatility and don’t need their money in the next few years.

Stepping back from the current nuttiness of the market should bring comfort in this time of uncertainty. We are very confident that the group of stocks we own in your portfolio is worth more than the current market prices. Our stocks have strong balance sheets, good long-term growth prospects, and low valuations. Unfortunately this doesn’t mean that prices can’t go lower in the short term. However, eventually markets calm down and stock prices gravitate to more reasonable valuation levels.

We are pleased that we’ve avoided all the collapses in the financial arena. However, recently companies connected with the global growth theme have come under extreme selling pressure. While we do not deny that current economic conditions will keep growth from reaching its near-term potential, growth will continue at attractive rates making current valuations unreasonably low.